The One Slow Thing About Google?

June 18, 2002 -- Remember when every dot-com wanted to go public?

It may seem like ages ago that scores of Internet start-ups were making splashy initial public offerings, floating their shares on the stock market and turning countless 20-something CEOs into short-lived millionaires.

In reality, it's been roughly two years since the dot-com IPO boom came crashing to a halt. And for evidence of how much times have changed, consider the success of search engine Google, one of the Web's most frequently-visited sites. Despite repeated Silicon Valley rumblings that an offering is in the offing, Google has been quietly resisting the IPO urge.

"We have no plans to go public at this time," says David Krane, Google's director of corporate communications, invoking a phrase that has become something of a company mantra.

Yet Google's apparent decision to shun a quick IPO serves as a case study in the benefits of remaining private. A Web site with an innovative technology but a seemingly narrow function, it has gradually increased its services, started turning profits and, in its own way, become nearly as familiar a part of the Internet landscape as America Online, Microsoft or Yahoo!

Quick to Search, Slow to Go Public

Google's comparatively long IPO fuse may be the slowest thing about the company, founded in 1998 by a pair of Stanford graduate school students, Sergey Brin and Larry Page. Google, based in Mountain View, Calif., rapidly became a Web favorite due to its innovative approach to searching.

Rather than produce search results according to the frequency with which certain keywords appear, or accept money to list some Web pages at the top of a search results list, Google lists pages in order of how many links point to them. Thus the results for a "World Cup" query on Google, for example, should start with World Cup sites that are the most popular among other Web sites.

This approach, along with the sheer speed of Google's search engine — helped by the minimalist, essentially graphics-free look of the home page — has made the site the Web's leading search service, and one of the most popular destinations on the entire Internet. According to New York-based Internet research firm Jupiter Media Metrix, Google was the sixth-most popular Web property in April.

Jupiter's research also shows Google growing more rapidly than any other player in the still-expanding search business, which increased by 11 percent in the six months before April. During that period, Google's popularity grew by 54 percent, well ahead of the 20 percent growth for search competitor Yahoo! — which now uses Google's technology — and Microsoft Network's search engine, whose use grew by 16 percent.

"They have yet to stumble," says Chris Sherman of the Web site searchenginewatch.com.

Finding Profits

Indeed, Google has been able to turn its sheer popularity into increasing — if modest — profits. While the company is tight-lipped about its finances, officials have not denied reports that the company made upwards of $10 million last year, on revenues in the neighborhood on $65 million-$70 million.

How does Google make money? The company has introduced graphics-free ads on many pages of search results, licensed its engine to other sites, offered a new corporate search tool, and closed a deal with AOL last month providing Google searches for users of the Web's leading access provider.

With all that in mind, Krane says he is "optimistic" that Google will be more profitable in 2002 than it was in 2001. And unlike hundreds of other dot-coms from the late 1990s, Google has not spent lavishly on promotion, salaries or incurred some of the excessive expenses of the time.

"The company spends very little of our money," says Krane. "We've always run this as a very conservative, cost-conscious business. We pay our employees well, but not off the charts."

The Perils of Going Public

In the aftermath of the deflated tech bubble, that kind of tight fiscal management and promising profits would seem to be a prerequisite for almost any company trying to go public.

"Six consecutive quarters of predictable earnings used to be the rule" before a company would be considered a safe bet as a public company, says Laura Roden, president of the Silicon Valley Association of Startup Entrepreneurs in San Francisco.

But even if Google is solid enough financially to float shares, the firm's founders are worried about the effect an IPO would have in the workplace. Brin and Page, says Krane, believe being a publicly-held company "would be really be a distraction from a cultural perspective." For instance, Krane says, "They're concerned about the amount of time employees would spend checking the stock price every day, or even every hour."

Beyond that, the need to satisfy investors could disrupt the process by which Google has steadily added new features to the site, like image searching, a phone-book lookup and its development of search tools for the corporate market.

"When you go public, you're so focused on financial results, you really don't have a chance to try new things," says Nicholas Hall, a Connecticut-based entrepreneur whose Web site, startupfailures.com, chronicles tech-company struggles.

That's why, say Roden, when a start-up like Google decides not to go public, "I think it gives them a lot more breathing room. It forces them to really think about the decisions they're making."

It's the Economy …

Still, Google watchers say they expect an IPO to be forthcoming sooner or later. Regardless of the company's caution, they say, a return will eventually be expected by the high-profile venture capitalists who invested in the firm in the late 1990s, including John Doerr of Kleiner, Perkins, Caufield & Byers — Silicon Valley's best-known venture backer — and Michael Moritz of Sequoia Capital, both of whom sit on Google's board.

"Clearly given the stature of the venture capitalists that have funded it, those people will want to get their money back, and the most likely route is an IPO," says Sherman. Another possibility, he adds, is for Google to be purchased by a larger firm: "One way or another, there is an exit strategy."

Google's Krane, however, says the venture capitalists on its board remain as patient as ever about their investment: "John and Mike in particular have always set out to encourage this company to build a long-term success."

And then there are the post-boom economic realities that could stymie any firm's best-laid IPO plans. Roden, for one, says she expects very few technology firms to go public in the next two years, due to the economic malaise and sagging stock market.

Laura Ramos, an analyst who studies search firms for Giga Information Group in San Francisco, calls Google's financial prospects "good," but points out that in tough times smart firms will not just be making money when they go public — they will wait until the whole business climate improves.

For Web-search firms, says Ramos, "Investors want to see a very large market — and I'm having trouble seeing in the next 12 to 18 months a very large market."

Which means anyone who wants to buy a piece of the speedy search site may have to wait for Google much longer than they ever have in the past.