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Gold rush for Google begins with IPO filing

By Kim Peterson
Seattle Times technology reporter

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Remember when Google was just a fast search engine?

The company has become so much more. These days, it's an Internet superstar, a technological pacesetter, a harbinger of a possible dot-com revival.

And this week, as the Silicon Valley company prepares for a stock offering, Google is hype gone wild.

Ultra-secretive Google executives finally silenced the "will-they-or-won't-they" debate yesterday by filing paperwork to take the company public and seek to raise $2.7 billion with an initial public offering. The sale and subsequent performance of the stock could value the company at as much as $20 billion.

This has set Silicon Valley alive with visions of cash windfalls that haven't existed since the dot-com frenzy of the late 1990s. Google employees could become millionaires when the company goes public, and those who funded the company in the past could see their investments multiply several times over.

Google at a glance What it does: Runs the Internet's most popular search engine Headquarters: Mountain View, Calif. Employees: 1,907 Searches answered daily: More than 200 million Web index: 4.28 billion Web sites, 880 million images Founded: In 1998 by two Stanford University students in a school dorm Revenue in 2003: $961.9 million Profit in 2003: $105.6 million

Puget Sound is not Silicon Valley, as technology executives here point out with equal parts relief and envy. But the Google earthquake is rumbling through the Silicon Forest and could stir more interest in technology from investors and more money from firms that fund companies.

"This is the Amazon of the new millennium," said Charlie Gillette, chief executive of Knowledge Anywhere, a Bellevue company that develops online education technology. "It's going back to the point of a brand-new idea, a brand-new concept that can become a solid business model and get widespread adoption."

Amazon.com is also what comes to mind for Eric Chiappinelli, a professor of law at Seattle University.

Chiappinelli has taught business law for nearly 20 years, and said the last time he saw this kind of hype around a stock offering was when Amazon went public nearly seven years ago.

"That seemed to have the same sort of reasoning behind it," he said. "It was a bull market and a company everybody knew."

Amazon had strong management and a history of doing business, and Google has the same, he added.

But there is one clear distinction, one that observers say makes all the difference after the dot-com bubble burst: Amazon didn't make money. Google does, mainly by selling online advertising on its search-results pages.

In some ways, Amazon ushered in the era of unprofitable companies going public — an era that is all but over.

Greg Linden understands the hype. He worked at Amazon back then and remembers that executives were distracted and out of the office talking to investors about the stock.

"It was a very tricky time," said Linden, who has since started his own company called Findory.com, which develops a personalized news-search engine. "There was a lot of focus on the company. It was very important to keep everything solid."

But the publicity surrounding Google is a little bizarre, Linden said. Amazon had to go public to obtain money to keep operating, and it raised just $54 million. Google has no need to do that and didn't seem to want to go public.

"They are a very strong company," he said. "They aren't a dot-com, at least not what a dot-com came to mean in the later 1990s."

Indeed, Google executives have appeared reluctant to take their company public. But they faced a deadline this week for a Securities and Exchange Commission rule that requires companies with more than 500 shareholders and $10 million in assets to start filing financial information within 120 days after their fiscal year ends.

That means Google would have had to start making the same disclosures about sales and profits that public companies make. The company might as well go public at that point, say observers. (Google is an advertising client of The Seattle Times.)

It has been many months since a noteworthy initial public offering of stock occurred. Google's offering, at $2.7 billion, would be among the largest of all time, far outstripping the $35.7 million raised by Starbucks and the $63 million raised by eBay.

After it starts trading, Google could reach a market value as high as $20 billion, ranking it in the league of Boeing, Starbucks and Amazon, but less than one-tenth of Microsoft's $285 billion market capitalization.

Dan Levitan was an investment banker working on Starbucks' IPO in 1992. Levitan, the co-founder and managing partner at Seattle venture capital firm Maveron, was also an investor in eBay's IPO six years later.

"I can unequivocally say that neither of these approached the hype, publicity and visibility of Google," he said. An amazing number of people use Google, he said, and that certainly wasn't true of Starbucks or eBay back then.

Up for debate is whether Google's IPO will usher in a new willingness from venture capitalists to open their pocketbooks. Gillette at Knowledge Anywhere said there will be more funding for companies that can show a solid business model, good management and squeaky-clean operations.

"It will get a whole bunch of people off of the sideline," he said. "People will say, 'We really should be looking seriously at tech-based organizations because they might be the next Google.' "

Venture capitalists have started funding more, Levitan said.

"For most of the venture capitalists who have waited for an event like this, it's too late," he said. "Once the hype starts coming back into the market, you want to be selling, not buying."

Google's actions are of particular interest in the Puget Sound area for additional reasons, said Greg Gottesman, a managing director with Madrona Venture Group. Microsoft, Amazon and other companies here are all developing search technology and could threaten Google's dominance of the search market.

"We are a Microsoft town, and Microsoft will be in the game," he said. "I'm sure of all the competitors out there, they are the most formidable for the core of what Google is doing."

Microsoft said it expects to debut its own search technology by year's end and that there is room for both companies in the business.

"There have been plenty of companies that have resulted in this very competitive landscape," said Lisa Gurry, a spokeswoman for Microsoft's MSN Internet division. "It will encourage us all to try to do new and exciting things."

Anyone even remotely related to Google has been flooded with questions about the IPO this week.

A partner of Kleiner Perkins Caufield & Byers — an investor in Google — found this out during a conference call Monday discussing PricewaterhouseCoopers' quarterly MoneyTree Survey on the climate of venture capital.

The subject matter wasn't focused on Google, but that didn't stop reporters from asking about the G-word — to the exasperation of participants.

"If I could implore you not to use Google as an example of anything," said Ted Schlein, a Kleiner Perkins partner, after patiently answering numerous questions.

Seattle Times Business reporter Tricia Duryee contributed to this report. Kim Peterson: 206-464-2360 or kpeterson@seattletimes.com

Copyright © 2004 The Seattle Times Company

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