Lecture
Larry and Sergey tried their best to delay Google’s entry into the stock market, but the deadline was approaching April 30, 2004. Closeness gave Google huge benefits that the founders of the company really did not want to lose. The most unpleasant was that the competitors - Microsoft and Yahoo! - find out what revenue Google gets, and marvel at the scale of operations. When this information becomes public, competition in the market will sharply intensify. However, federal law requires that a company with significant assets and a large number of shareholders publicize its financial results. In addition, Google provided stock options to its employees, and the founders felt obliged to give employees the opportunity to convert them into hard currency.
They knew that the planet of businessmen was littered with debris of firms whose founders and employees worked with full effect in a closed joint-stock company, but immediately after entering the stock exchange they lost control of their brainchild. How many cases were there when, due to the transformation of the company into a joint stock company, the collective efforts and the pace of its development were waning. And the thing is that hundreds of employees, many of whom previously could not afford to buy a car, suddenly became millionaires.
In addition, when it becomes known that Brin and Page are billionaires, media interest will sharply increase in their personalities.
They were worried about the safety of loved ones, and that they would be forced to lead a different way of life. Do have to say goodbye to the freedom that they have enjoyed up to now? Should they not resort to the services of bodyguards?Sergey's father, as before, taught mathematics at the University of Maryland, and his mother still worked at the Center for Space Flight. Goddard. Their colleagues and employees didn’t even know what Mr and Mrs Bryn had to do with Google. Will he change the lives of parents for the worse when the media trumpets that Sergey is one of the richest people on the planet?
Reluctantly, Bryn and Page recognized that they took the first step towards an IPO on the day when they took $ 25 million from Kleiner Perkins and Sequoia Capital. Venture capital firms were to receive profits from the sale of their shares and pay dividends to investors. The founders of Google, these 25 million then desperately needed for the development of the company. And those 100 thousand dollars that they received from Andy Bekhtolipyma were also needed - for the purchase of a batch of computers and components, which allowed them to bring the work to create a search engine to its logical conclusion. In addition, they borrowed a total of $ 1 million from parents, friends and small investors.
Of course, it would be nice to have free capital, which can be spent on business expansion and the upcoming fight with Microsoft, but the company already earned enough money. And neither Bryn nor Paget particularly needed the billions that they would get when they put Google on the stock exchange, because both of them led a rather modest and unassuming lifestyle. To wealth as a measure of success, they too were indifferent.
For most entrepreneurs from Silicon Valley, entering the stock exchange with an initial public offering of shares (IPO) was a dream, a moment when you can soak up the glory and appreciate the value of your company as it does in America - the thickness of your wallet. But Bryn and Page were the exact opposite of these businessmen. They appreciated secrecy and freedom, and they were very happy with the fact that analysts and competitors invariably understated the financial results of Google. Since the company did not have debts, paid off itself and had free capital, they, in general, did not need to place shares on the stock exchange. The only advantage of converting Google to OAO was that they would receive additional resources that can be directed to the implementation of new promising projects. But since it was necessary to go on the stock exchange and part with the closeness dear to the heart, Sergey and Larry will do it in their own way - as always, by the way.Neither Wall Street nor anyone else decreed it, even considering that friends were not big financial experts. Entering Wall Street did not seem to be as difficult as creating a super-prospector, developing employee motivation programs, or managing a fast-growing and profitable company, and therefore they will find a way to keep full control over Google. It was much more important for them to be able to replenish their bank accounts. And even if they had no choice but to place shares on the stock exchange, they were not going to run on Wall Street and ask for help.
The history of Wall Street did not know the case when the company successfully carried out the billionth exchange transaction in the manner suggested by Larry and Sergey. But that didn’t scare them. Dreamers, accustomed to doing something that no one else dared, were determined to pave the way. They will collect information, consult with specialists and make decisions on their own - based on what they need. Well, the fact that someone on Wall Street may not like it is of little concern to them.
On the eve of public trading, an investment firm with Wallstreet, taking into account the demand from investors, market conditions and other factors, sets the initial price for the company's shares. In relations between the issuing company and the investment firm there are plenty of sharp corners. Wall Street brokerage firm is interested in understating the price of shares: it will be easier to sell them, and even selected investors will lose a good money when the stock price soars on the first day of trading. The issuing company is interested in the price being as high as it acts as a seller of shares: the higher the initial price of shares, the more money it will receive. Wallstrets investment specialists tried to convince top managers of companies that they had better “leave some money on the table” - that is, slightly lower the price of shares. In this case, they argued, large investors would be more willing to buy shares in the company later when it needed additional funds.
Major Wallstreet firms controlled the entire IPO preparation process.They set the initial price of the shares, decided which investors to provide the shares, and requested huge fees for their services. Larry and Sergey had heard about scandals (some of them even knew about the prosecutor's office) that had arisen due to the fact that Wall Street initially lowered the price of shares, and then allowed its caste customers to sell the shares they had purchased on the very first day of trading, after those jumped in price. The founders of Google did not want to deal with this corrupt, rotten system.
They were absolutely confident in their abilities and trusted the mathematical equations and technical advances more than the Wall Street consultants dreaming of fees. They could not understand why in the Internet era, Wall Street still earns the old-fashioned way, from time immemorial using the same scheme. There were new technologies that allowed to perform operations faster and more efficiently, however, the “inhabitants” of Wall Street preferred to conduct business in the way they always did, putting mutual responsibility and fees, rather than customer interests, above all else. Large investment companies were not going to change their approach to business, but other firms simply did not have a reason to do it.
For Wall Street, a powerful, daring, and well-known company trying to establish its rules of the game on the stock exchange was a phenomenon quite rare. Usually, companies needed to organize field presentations, advise by hand, and help convince investors that their shares should be purchased. For such an attitude and company services, they were ready to pay the Wallstreet consultants the fees they requested - all the more so since they were deducted from the money received during the public auction.
In its IPO application filed with the Securities and Exchange Commission, Google presented a completely different, fairer way of distributing shares between individuals and legal entities interested in them, a method that it called “equalizing”. It will be an effective cure for Wall Street's painful inclination to undervalue stock prices. It is based on the electronic version of the “Dutch auction” - the pricing methodology, which was invented by Dutch flower growers who sold tulips.
Using the experience of a 24-hour electronic auction, Google will set the price for its shares based on the analysis of applications received by potential investors received online. Those of them whose declared price will be higher than the so-called “clearing price” established by the company or equal to it will be able to purchase its shares, well, those whose declared price will be lower will not. (Google executives later said they would prefer to organize a round-the-clock auction to sell shares without a fixed price, but according to the rules of the Securities and Exchange Commission, the price of shares offered as part of an IPO should be the same for all investors.) Before announcing At the beginning of accepting applications from investors, who usually placed their applications in brokerage firms, Google will publish the minimum and maximum prices for its shares. And large investors,and small ones will get equal opportunities to purchase shares. There will be no pets, no distribution of shares to relatives and friends, or "sweetheart" transactions. Even beginners with relatively modest financial opportunities, usually ignored by Wall Street, will be able to take part in the auction - provided they acquire at least five shares. No one has yet established such a minimum shareholding (usually the minimum shareholding includes much more shares), the brokerage firms initially did not want to give him a go-ahead, but Google insisted on it.No one has yet established such a minimum shareholding (usually the minimum shareholding includes much more shares), the brokerage firms initially did not want to give him a go-ahead, but Google insisted on it.No one has yet established such a minimum shareholding (usually the minimum shareholding includes much more shares), the brokerage firms initially did not want to give him a go-ahead, but Google insisted on it.
Suddenly it turned out that millions of American Google users, who had never before participated in trading on the stock exchange, now have the opportunity to purchase several shares of the company (if, of course, they can afford it). They will not get a turn from the gate just because they do not live in a luxurious mansion and are not familiar with the right people. That was all Google. Bryn and Page, though they were not eager to take their company to the stock exchange, they decided that they would do it as democratically as possible.
Friends really didn’t like Wall Street’s monopoly fee. Whichever company you take, everyone called the same amount for managing the process of preparing for an IPO, no matter how well the company’s shares would sell. The firms to which they applied invariably requested 7%. This meant that by offering shares totaling $ 2 billion, intermediaries would earn $ 140 million. In theory, they requested such fees because there was a risk that some of the shares would remain unsold. This principle underlay the so-called “underwriting”: Wallstreet firms guaranteed to bidding companies that they would receive an amount corresponding to the agreed stock price for their shares, and they, in turn, paid firms for the risk that otherwise, it will not be possible to sell all the shares.However, in practice, all firms have always asked for one fixed amount of the fee and have previously sold large blocks of shares. Larry and Sergey did not see any logic in this, especially given the rush around Google shares.
Therefore, they decided that they would pay the Wall Street services at a rate that was two times lower than the standard. Those brokerage firms who consider this condition unacceptable, no one will persuade to cooperate with Google. In addition, Bryn and Paige, to the smallest detail, developed a plan to take control of the pricing and distribution of shares that gave rise to a dozen scandals on Wall Street, and also retained the right to cancel an IPO at the last moment if they change their mind. By this, the founders of Google sent a black mark to Wallstreet. If the company manages to carry out its plans, it is quite possible that the fees and the role of intermediaries in preparing for the public offering of shares will be sharply reduced.
Larry and Sergey also will not give the name of the person who will act as chairman of the board of directors of Google in the process of entering the company on the stock exchange, this position will remain vacant. This decision was dictated by the desire to maintain control over the company. CEO Eric Schmidt will act as chairman of the executive committee, which will allow him to perform all the formal and legal procedures that the status of the company assumes. Brin and Page remain presidents and controlling shareholders. These two, while keeping Schmidt on a short leash, will manage Google together. They will name the chairman of the board of directors later when they have more free time.
Representatives of brokerage firms who met with Google executives to discuss the process of preparing for an IPO should have signed a non-disclosure agreement. After Google chose Credit Suisse First Boston and Morgan Stanley, Bryn and Page demanded that representatives of these firms sign a separate non-disclosure agreement before each meeting. In addition, the company provided them with a minimum of information on financial results and volumes of operations, keeping them for a rather long time in ignorance. Google also made it clear to Wall Street that the legal consequences of information leaks before or after an IPO would be very serious. Investment bankers and lawyers complained that such obnoxious types as Google executives,they have not met yet.
Legal advisors from Wilson Sonsini Goodrich & Rosati, a reputable firm that trained almost all major deals for Silicon Valley and Wall Street, informed Larry and Sergey that after submitting the documents to the Securities and Exchange Commission for the company, the so-called “period silence. At this time, they will not be able to say anything that could affect the growth of the value of shares. However, Bryn and Page did not understand why it is possible to conduct field presentations during the “period of silence” - closed-door meetings with financial aces, representatives of investor organizations and “heavyweights” from Wall Street, in which top managers tell about their company and answer questions. What about ordinary investors? How about ordinary google users who probablyalso want to invest in a company? Why should they wag their tails in front of business sharks and forget about the existence of medium and small investors? This tradition, in their opinion, was typically Wall Street (that is, unfair), and they decided to break (or at least bend) it in preparation for entering the stock exchange. All the information about Google, which they will provide in the framework of on-site presentations, they will put on the Internet.
Google is not a traditional company at all. And we are not going to change.
These words began a letter from Brin and Page, accompanying the IPO application submitted to the Commission in mid-April 2004. The idea of attaching a philosophical content letter to the package of reports and documents was approved by Wilson Sonsini. Internet users were also able to familiarize themselves with the content of the letter of the founders of Google: it was promptly posted on the Web. Brin and Page were determined to send their letter to the Commission, they were absolutely not interested in what their main investors, John Derr and Michael Moritz, thought. They wanted to demonstrate that Google has its own face, that it is different as a commercial enterprise and employer. Most private companies preparing for IPOs were limited to filing standard documents with a standard set of legal and financial information.The founders of Google wanted to surprise the whole world with an unusual letter, which described the company's culture and presented their worldview, and also sounded warnings to Wall Street and investors who did not share their position - they were advised not to interfere in the process.
Moritz, concerned about the possible consequences of the publication of the draft letter, began to act. The day before the publication, he still managed to get the text from Paige. Removing something and adding something, Moritz gave him a more restrained tone, smoothing out sharp corners and making a number of amendments, and, most importantly, defined the role of Eric Schmidt after the company was transformed into a joint stock company.
Derr and Moritz, who forced the founders of Google to take Schmidt, least of all wanted his importance as CEO now, on the eve of the IPO, downplayed. They knew from their own experience that in order to be confident in the future of the company and to achieve proper valuation of shares at tenders, they need to convince investors of two things. That the founders, driven by a desire to change the world for the better, will focus on the development of innovations, and an intelligent and experienced manager will ensure that the company pays due attention to shareholders, introduces mechanisms of restraint and balances and implements sound financial management.
Brin and Page in their letter stressed that in the management of an open joint stock company they intend to adhere to the same principles that they professed when Google was a company. For example, they will not pray for quarterly profits sacred to Wall Street — they will do what they deem most appropriate for Google’s development in the light of a long-term perspective.
Top managers of the company are distracted by short-term goals as meaningless as a dieter, to approach the scales every half hour, they wrote. As Warren Buffet said, “we will not“ smooth out ”quarterly or annual reports. If they arrive at angular headquarters, they should remain angular when they come to you. ”
They called their letter “Instructions for Google Shareholders”. The name, they said, was inspired by the letters accompanying the annual reports of Berkshire Hathaway, a large insurance company headed by investment guru Warren Buffet. So, with one stroke of the pen, Larry Page and Sergey Brin equated themselves to Buffett, the most successful American investor of our days and billionaire.
Google, unlike some of its competitors (including Yahoo!), was based solely on software, it did not own the content and did not create it. But at the same time she received income from advertising, as a classic media company. In their letter, the founders of Google announced that they were planning to issue two classes of shares: class A shares intended for shareholders, each of which gives one vote, and class B meant for themselves, each of which gives ten votes. Such a two-class structure will make it impossible to take over a company without their consent, deprive state investors of the opportunity to influence its top managers and allow them to manage the company without fear of outside interference. This option seemed best to Google executives.
Justifying his decision to issue two classes of shares, Brin and Page compared a six-year Google with three leading American newspapers - The Washington Post, The New York Times and The Wall Street Journal. The families that controlled these newspapers also issued shares of two classes in order to protect their editorial teams from possible outside influence. A couple of scholars and fighters with stereotypes who adored Silicon Valley and rejected the traditions of Wall Street understood that in order for their arguments to sound as convincing as possible, they needed to draw a clear line between principles and wishes.
This structure will allow our team, especially Sergey and me, to retain control of the company, after Google shares change owners. The two-year structure was introduced by The New York Times Company, The Washington Post Company and Dow Jones, publisher of The Wall Street Journal. We believe that the two-class structure will enable Google OJSC to preserve the maximum positive aspects that are characteristic of the company.
The proposed two-class structure provided for the lack of accountability of the founders to anyone. Accountability is one of the principles that Bryn and Page introduced to Google to ensure that employees of the company have a proper attitude. A candidate for a vacancy must be approved by Bryn, Page or one of the company's top managers. They even asked for a diploma supplement and test results. But the founders of Google, who had a decisive vote on personnel issues, were not bound by such accountability when they were at the head of a closed joint-stock company, and did not see the need to change anything after the company became an open joint-stock company. This meant that they could dismiss Eric Schmidt as easily as a newly hired programmer.
As an investor, you make a potentially risky long-term stake on our team, they wrote. We believe that a healthy society should have unlimited, free and undistorted access to high-quality information. Therefore, Google has a commitment to the community. The two-class structure will allow to fulfill these obligations.
Bryn and Page noted that they are guided by the principle "Do no harm!" With respect to Google. They explained what this means in relation to the search.
Search results are the best of all our creations. We do not put sites into lists of results for money, do not update copies of web pages in our index ahead of time for a certain fee. We place ads on search results pages, but we try to make them as relevant as possible and clearly separate them from the results themselves. Our site is organized on the principle of a serious newspaper, on the pages of which all advertising layouts are clearly separated from informational materials and advertisers do not affect the content of articles.
With this indiscreet statement, they, like that sandpiper, praised their swamp and simultaneously threw a couple of pebbles into the garden of Yahoo! and Microsoft, its main competitors. The founders of Google called Yahoo! a popular website and search engine number two in the US, "evil" because it took money to put sites to higher positions in the lists of results. The essence of their statement was as follows: Google search results are adequate and impartial, Yahoo! search results prejudiced.
However, the distinction was not so obvious. As it turned out, most computer users do not even realize that there are advertisements on Google search results pages. That is why many people do not understand how the company earns money. According to a study conducted by the Pew Charitable Trusts organization, 62% of Google users see no difference between the actual search results and the advertisements located to their right. People who know that the small text ads in the column on the right are ads, they click less on them, marketing experts say. Thanks to the uncertainty inherent in the new environment, Google’s profits grew faster.
By capturing the “Sponsored Links” ad column, Google thereby avoided specifics. This phrase, unlike the word “Advertising”, does not have negative semantic coloring, and therefore more users click on the advertising links. “Google advertisements are extremely effective because most people take them as regular links. Is this not evil? ”Alan Deutschman asked in an article in the Fast Company magazine.
Many believed that Brin and Page’s reasoning about good and evil were self-serving, because their essence was to say that only Google does everything right. But precisely because of this statement, the company began to shine against the background of others and attracted the attention of the whole world. It also had a positive effect on specialists from other companies and Google employees. One of them even wrote about it on the board in one of the Googleplex offices. Many of the first-class programmers are not alien to such philosophical questions as “What is good and what is bad?”, “What is good and what is evil?”. The technology itself can carry light or darkness. Talented engineers instinctively pursued a company that put worthy values above the need to increase profits and expand market share.Against the background of a string of lawsuits and many years of litigation, which secured Microsoft’s reputation as a greedy monopolist, Google’s position has greatly increased its authority.
Google’s financial results presented in its IPO bid hit analysts, competitors and investors. We can say that the high-speed search engine had the gift of King Midas. At the end of the first half of 2004, the company's sales amounted to $ 1.4 billion, and the profit was $ 143 million, while in the same period of 2003, sales amounted to $ 560 million, and profit - 58 million The dynamics of increase in profits clearly indicated a high growth rate. If the financial results made public by the company were not so impressive, few would have paid attention to the words of Brin and Paget. But in a world where the rich and powerful listen more attentively than the poor and weak, such financial results definitely gave weight to the arguments of the founders.
In the late 1990s, when Internet companies with meager sales and zero profits one after another went to the stock exchange, Google remained a closed joint-stock company. The company "revealed" only a few days before the deadline. During this time, it was transformed into a machine for making money, more than once or twice getting on the front pages of newspapers around the world, becoming a tasty morsel for investors. “The most anticipated IPO of the century is approaching. The document, which contained financial details, business strategy and risk factors of the search monster, instantly pushed Bob Woodworth’s book about preparing the war with Iraq to second place in the list of the most discussed works in the country, ”wrote Newsweek magazine.
Bryn and Paige, idealists by nature, have pushed the financial details into the background. In describing the objectives of the company, they expressed the hope that its resources and innovations would be involved in solving serious global problems.
We are committed to making Google an organization that will change life for the better. We are working to create a Google Foundation and plan to invest significant resources in it, including working time and about 1% of Google’s share capital and profits. We hope that one day this organization will overshadow Google itself with no degree of influence across the globe.
But the members of the Securities and Exchange Commission were not thrilled by Google’s application. In private letters, they bombarded the company with questions regarding the basic principles of the auction of shares and criticized the founders ’letter of philosophy for being too relaxed.
“Please correct or delete the phrases“ we are doing a great service to the public ”,“ doing what is really important ”,“ strengthening the positive influence ”,“ do no harm! ” and her legal advisers. - Make adjustments to the section “Change your life for the better”: it should indicate the negative aspects associated with your products. For example, concerns about protecting the privacy of information caused by the introduction of the Gmail service. ” The Commission also raised several dozens of questions of a financial and legal nature. Some of them concerned allegations that could give investors an incorrect or incomplete view of Google’s risks. "Your claim that the claim of Overture Services is weakly argued is a legal conclusion,and the legal conclusions of google are incompetent. Please correct this statement or delete it. ”
The commission did not intend to give the go-ahead for an IPO, unless the application is amended. Larry and Sergey made certain concessions, however, they did not remove certain “branded” phrases and elements. Thus, Commission members did not particularly like the fact that the names of the founders, Schmidt and other managers are mentioned in an informal style. “Throughout the document, executive directors, directors and major shareholders you name by name,” they wrote. “For clarity, please make adjustments so that only full names or surnames are present in the document.” Larry and Sergey refused to do this.
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History of computer technology and IT technology
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