Is Google Fumbling Its IPO?

The New York Times quoted Robert Clarkson, a partner in the Menlo Park, Calif., office of law firm Jones Day, as saying that such a violation is "not uncommon," and that it shouldn't get in the way of the offering. "Most commonly, the only consequence is that the companies are required to offer to buy back the shares sold, he said. Knowing that, Google might conceivably have refrained from registering its stock to avoid giving competitors an early glimpse into its operations. The cost to Google, Mr. Clarkson suggested, will probably be less than $200,000 in legal fees for handling the buy-back offer," the Times reported.

A Few Zeroes Short of a Google

These developments -- and a number of others -- don't inspire confidence in the pundits. Take the company's current roadshow featuring co-founders Sergey Brin and Larry Page. As several columnists from the San Jose Mercury News noted, the IPO for the masses fails to focus much on the little folk.

"Google's quixotic and confused attempt at shareholder democracy stopped short Thursday afternoon at the elegant doors of the Veranda Ballroom in San Francisco's Four Seasons Hotel. An audience of about 100 fat cats were treated to an invitation-only 'road show' briefing by [Google's founders], who described in person the Mountain View company's impending initial public stock offering. Small investors, including very specifically me, were excluded," wrote Merc columnist Mike Langberg. "As I wrote last week," Langberg continued, "I intend to bid in the Google IPO and write about the experience. I've registered for a bidder ID, which should entitle me to attend, and I went to the sign-in desk in front of the ballroom entrance shortly before show time. In an almost comic round of ducking responsibility, no one wanted to admit for the record that I couldn't go inside. Even a Google lawyer refused to be quoted as saying no. Someone finally dragged out a very exasperated John C. Hodge, head of the technology group for underwriter Credit Suisse First Boston, the firm hosting the road show."
San Jose Mercury News's Mike Langberg: Invitation-only Briefing Excludes Small Investors (Registration required)

Last Saturday, Langberg was equally unsparing in his review of the Google IPO video: "The lighting was so bad in some shots that faces were in shadow. There was no bouncy background music. The PowerPoint slides interspersed among the talking heads weren't animated. And the four never walked around or did anything more dynamic than gesture with both hands. There was one scary moment, however, that earned the video a rating of IC -- Invest With Caution. Brin, wearing a red shirt, said: 'I believe that a successful corporation has a responsibility that's greater than simply growing itself as large as it can be.' Such companies, he continued, 'have an obligation to apply some of those resources to at least try to solve or ameliorate a number of the world's problems and ultimately to make the world a better place.'" Langberg pulled no punches in his assessment: "I want to invest in companies obsessed with growing their share price. I'm glad I work for a company with a healthy concern for the bottom line. The next time I ask for a raise, I probably won't get it. But at least I won't hear: 'We'd like to pay you more, Mike, but we're spending heavily this year to make broadband more accessible in Third World villages.'"
San Jose Mercury News: Investors Get Few Details From Google's Somber Video (Registration required)

After quoting an expert who says that Google's initial stock performance probably will resemble an erratic EKG, Forbes.com columnist Scott Reeves goes to town: "So why not launch Google's IPO the old-fashioned way? Price the shares to sell at, say, $20 to $25 each, and watch the fireworks. This is where California egalitarian claptrap kicks in, even in Silicon Valley, where entrepreneurs weaned on venture capital should know better. The Dutch Auction is intended to give individual investors a chance to get shares at a good price. Right. Google's shares are pegged at a mere $108 to $135 each, and only those who were dropped on their head at birth will plunk down that kind of cash for an IPO."

Reeves also took aim at several other Google problems, including the unregistered pre-IPO stock and possible damaging competition from Microsoft. "The company's recent disclosure that it may have violated U.S., federal and state law by issuing about 23 million shares to consultants, as well as current and former employees, adds another layer of risk to the IPO. That's a huge number of shares--not the kind of thing the janitor finds stuffed behind a filing cabinet. The obvious question is: How can a good company be so inept? Technological changes are swift and brutal on the Internet. There's no immediate apocalypse in the wings for Google, but Microsoft is circling." According to Reeves, "The Dutch Auction will screw up the dynamics of Google's IPO. Many individual investors don't understand how the auction works and know only that they want Google's shares. Those who survive may learn something. Terrific company. Nutty deal. The shrewd investor will wish Google well but say, 'Not with my money.'"
Forbes.com's Scott Reeves: Gagging on Google's IPO (Registration required)

San Francisco Chronicle columnist Kathleen Pender thinks Google's a great company and admires its pluck in pursuing its own course on the IPO, but she also says regular investors shouldn't bother. "Last week, my bosses suggested that I bid on a few shares of Google, with the company's consent and capital, so I could write a first-person account of the firm's initial public offering. But I've decided against it. Even though I wouldn't keep the profit (or suffer the losses), I don't think the Google IPO is a good deal for ordinary investors unless they're real gamblers, which I am not."

Pender also pillories Google for holding a roadshow whose entire exclusive manner contradicts the IPO-as-collective atmosphere that Page and Brin are cultivating. She also comes out with this bit of noteworthy information after displaying what must have been some true journalistic grit: "So far only four firms have leaked any shreds of information. Fidelity's brokerage arm will require Google bidders to have at least $100,000 in an account or have placed at least 36 trades in the past year. HarrisDirect will require a minimum account of $100,000. WR Hambrecht will let anyone with at least $2,000 at the firm bid. E-Trade clients must have at least $1,000 in an account. Charles Schwab, Muriel Siebert, Ameritrade and Wells Fargo securities refused to comment."
San Francisco Chronicle's Kathleen Pender: Why I Won't Buy This Risky Stock (Registration required)

No Green Giants Here

Silicon Valley giants like Apple Computer co-founder Stephen Wozniak are not exactly turning green with envy over the folks who plan on buying in to Google. Wozniak told the New York Times that Google is not for him. "I'm not buying," Wozniak told the Times. "Past experience leaves the taste that a few people - never ourselves - will make out the first day, but that it's not likely to appreciate a lot in the near future or maybe even the long future." And then there's this decisive statement: "'I wouldn't be buying Google stock, and I don't know anyone who would,' said Jerry Kaplan, a longtime technologist. Mr. Kaplan made his name at the software company Lotus Development back in the 1980's and has since been a Silicon Valley entrepreneur, taking two small companies public. Mr. Kaplan said he had warned his mother not to buy Google stock." When you warn your mother, you know it's serious.

To be fair, the Times sought out the other side of the coin: "Not everyone is negative, of course. Although he does not find Google an alluring investment, John Gage, director of the science office at Sun Microsystems, said he intended to place a bid for several shares, for sentimental reasons. He worked with Google's chief executive, Eric E. Schmidt, for many years when Mr. Schmidt was at Sun. 'They're good guys, and they've been doing the right thing,' Mr. Gage said of Google's management. 'They're poised to do something really interesting.'"

So does this mean that if the Google IPO doesn't fulfill expectations that the terrorists have won, as the snarky saying goes? Ask Moses: "For many in Silicon Valley, their disillusionment with Google's approach to its stock offering includes disappointment that the event may not revive the high-technology stock offering market, as many had hoped. 'I think Google isn't doing what it needs to do to help the country,' said Moses Ma, a former software designer who is now a partner at Next Generation Ventures, an investment firm based in San Francisco. 'For a while I thought it was an absurdist play titled 'Waiting for Google.' Everyone was sitting around thinking it was going to save the industry, but it's not.'"
• The New York Times: Loving Google but Not Its Public Offering (Registration required)

Greatest Party Hits

Apple's iTunes digital music store is adding a new music genre to its downloading options: "preaching to the choir." Mac Observer reported that Apple is offering free downloads of speeches from the 2004 Democratic National Convention in Boston. Among the speeches now available: those given by former President Jimmy Carter, Sen. Hillary Rodham Clinton (N.Y.), Sen. Ted Kennedy (Mass.), Illinois Senate candidate Barack Obama, Ron Reagan Jr. and first lady "candidate" Teresa Heinz Kerry. Former vice president and current Apple board member Al Gore also is featured. Mac Observer also said that Apple will offer similar courtesies for Republicans after they meet for their national convention in New York later this month.
• Mac Observer: Apple Offers Free Downloads Of DNC Speeches On iTMS

Yes, Dahling, It's Known as the Warhol Effect

People always talk about getting their 15 minutes of fame, but McAfee anti-virus expert Jack Clark appears to be the first to coin an easy-to-use term to apply it to the world of computer security. Discussing the variant of the MyDoom virus that targeted Google and several other search engines late last month, Clark said the virus would exhibit the characteristics of the "Warhol effect." Witness here the generation of what surely will be the English-speaking world's next household term, courtesy of an interview the BBC conducted with Clark: "We can expect to see a massive slowdown. You have this Warhol effect. A virus is famous for 15 minutes, or in this case for 15 hours, and then there is a big drop off the next day as people update their anti-virus software." A Google search revealed page after page of the word "Warhol" couple with the word "effect," but the only places where it was used this way were Web sites that ran the BBC article. Now that's hip.
• BBC News: Virus That Hit Google Subsiding

Cindy Webb is away on vacation; she will return on Monday, August 16. Comments about this column should be sent to robertDOTmacmillanATwashingtonpost.com