At Google, Beware The IPO Aftermath
By Fred Vogelstein; Adam Lashinsky

(FORTUNE Magazine) – All successful entrepreneurs are control freaks. But read Larry Page and Sergey Brin's letter to future Google shareholders and it's evident they've taken that mania to new heights. The offering--the first large auction-style IPO--is designed to wrest virtually all control away from their underwriters. And the post-IPO ownership structure, with two classes of stock, will give them virtually unchallengeable authority as shareholders. No tech startup in history has had the self-confidence to be so bold, not Intel in the 1970s, not Apple and Microsoft in the 1980s, and not Netscape, Amazon, eBay, and Yahoo in the 1990s.

There's a good reason for this: Google has an astounding $455 million of cash in the bank--almost as much as eBay had after its IPO. Despite the money it is spending to fuel its torrid growth, it is still adding roughly $100 million a quarter to that hoard. The subtext here is that Brin and Page never wanted to take Google public. Forced to by SEC rules and investors who want to cash out, they are doing the next best thing: going public but continuing to operate as if they were a private enterprise. You want earnings guidance? Invest somewhere else.

But what Brin and Page will have to do is let everyone, including competitors like Yahoo and Microsoft, see Google's financial statements. When it puts a new product up on the site, it may have to disclose that, too, instead of letting it gather steam quietly through word of mouth, like Google News.

And they'll have to face another force they'll be powerless against: Employee turnover and employee envy. Until after the restrictions on employee sales expire, the number of people who will have left Google will be virtually zero. Thereafter, the turnover will start--perhaps just a trickle at first. But if Google is valued at $20 billion, anyone with more than 15,000 vested options--easily 10% of the staff--will be a millionaire. And when people become millionaires, their priorities often change.

Many of those who stay will, by their very presence, foster envy among the rest of the staff. In Google's early days it handed out options liberally, but in the past two years, as its popularity exploded and it was receiving 1,000 resumes a day, it cut that amount to just a few thousand, even for experienced MBAs. No matter what the founders do, a culture of haves and have-nots will develop at Google.

Google is already struggling with an implied caste system because of the hundreds of contract workers it has hired, employees who work without benefits or options. But employees with full-time status have by and large felt as if they were on the same team. Indeed the company has strived to treat employees like family. The entire staff still meets every Friday, as it has since the company was founded, to talk about the business.

Now, regardless of what Brin and Page do, that feeling will change, says Paul Saffo, director of the Institute for the Future in Palo Alto and an observer of Valley trends for two decades. "No matter how you spin it, it's a problem when the guy who works for you shows up for work in a Boxster that you can't yet afford because you haven't been at the company as long." Perhaps it's a small price to pay--and Microsoft has certainly thrived despite thousands of MSFT millionaires--but for Brin and Page, it will be an unwelcome dose of adulthood.

--Fred Vogelstein and Adam Lashinsky