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Will Google be giggling?
With the prospect of an IPO looming, the search engine's coffers may soon be very, very full.
October 28, 2003: 11:59 AM EST
By Adam Lashinsky, CNN/Money Contributing Columnist

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MENLO PARK, Calif. - The answer to Silicon Valley's favorite parlor game is about to be revealed. If various recent and convincing press reports are to be believed, Google will go public some time early next year.

Now begins the next phase of the game: Guessing just how Google will do it. The debate is between two possibilities. The first is that Google will conduct its IPO the bad old way, by allowing investment bankers to sell to their clients a relatively small chunk of the company at a price the bankers determine.

The second is that Google will conduct an online auction for its initial public shares, a process that would be likely to yield Google more upfront money and would be considered more fair than the current process.

A little background on the IPO game in general and on Google in particular are in order.

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IPOs became the spectator sport of the late 1990s, when the entire investment world -- amateurs and pros alike -- scrambled for a seat and table, a table that had only so many seats. When deals were in great demand, the chosen few who were granted allocations of shares by the investment banks cleaned up. They were able to buy shares at a price bankers determined were reasonable and to sell them at a price the public was willing to pay.

Companies quietly groused that they had left money on the table by not selling their IPO shares at the price the public would bear. But secretly they were satisfied enough to be part of the spectacle.

At least one company, W.R. Hambrecht & Co., deployed a so-called Dutch auction process that sold IPO shares at the highest price at which enough credible bidders could be found. In other words, the IPO price wasn't necessarily the highest bid, but the highest price at which all the orders would be filled.

W.R. Hambrecht only completed a handful of deals, however. Sensible companies -- no matter how "fair" they understood the Dutch auction process to be -- entrusted their IPOs to investment banks like Goldman Sachs, Morgan Stanley and Credit Suisse First Boston. Entrepreneurs likened the decision to choosing health care for one's child: not a time for experimentation.

Enter Google. It got going well after the bubble had over-inflated and wasn't even ready to go public until well after it burst. The company has racked up serious revenues and profits by selling paid placements near its search listings as well as by peddling search technology to other Web sites.

A recent report in Barron's noted that because Google now has several hundred shareholders, SEC requirements will force it to report its financial performance publicly. As long as it's going to lose its privacy, pundits reckon, Google might as well enjoy the fruits of being public. Last week, the Financial Times reported that Google had begun interviewing investment bankers about how it should conduct its IPO.

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And so the question remains: Will Google experiment with its own IPO or will it go the tried and true way? I asked co-founder Larry Page that question in July, arguing that Google almost had a responsibility to its online revolutionary roots to conduct an online IPO. Page, unsurprisingly, kept his cards close to his vest. "That would be interesting," he told me, almost mockingly.

Will they or won't they? My guess is that for all the sound and the fury, Google will not do an online IPO. Oh, perhaps it'll include a few innovative features, such as making some percentage of shares available to the hoi polloi via the Internet.

But I think that at the end of the day the graybeards who are advising Google will say, "Look, this is no time to be fooling around. We take the money, we set up an orderly process for establishing liquidity in the stock price, and we carry on."

After all, if Google conducts an auction and the price proceeds to plummet, investors will blame Google, not its bankers.

Adam Lashinsky is a senior writer for Fortune magazine. Send e-mail to Adam at

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