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Mon Apr 26,10:48 AM ET Add Technology - washingtonpost.com to My Yahoo!

By Cynthia L. Webb, washingtonpost.com Staff Writer

Google Inc.'s highly anticipated stock offering -- which could come as early as this week -- is being touted as the hottest thing to happen to the tech sector in years. If the starpower lining up behind the company is any indication, "hot" might be an understatement.

The hype did nothing but simmer throughout the weekend as news that the public offering is near led to front-page treatment in The New York Times yesterday.

The paper compiled a who's-who list of the rich and famous who have already invested in Google. "Tiger Woods has his small stake. So do Shaquille O'Neal, Henry A. Kissinger and Arnold Schwarzenegger (news - web sites)," the paper reported. Andy Bechtolsheim, a Sun Microsystems co-founder, who the Times noted was the first person outside of Google to invest in the company, "said he owns a little more than 1 percent of Google. Assuming a huge opening day, the $200,000 he invested in Google in 1998 could be worth at least $300 million." Other investors include "Marc Andreessen, the founder of Netscape; Pierre M. Omidyar, a founder of eBay; Shawn Fanning, the creator of Napster (news - web sites); and Bill Joy, the software innovator who recently left Sun Microsystems," the paper reported. It added that Stanford University has stock in Google and gets licensing money because company co-founders Sergey Brin and Larry Page created the service while grad students at the university.

So how much does Google stand to make in its IPO, proving a cash-cow for its A-list of investors? "The current prediction is that Google, if it decides to sell shares to investors this year, would probably end up with a market value of $20 billion to $25 billion by the end of its first day as a publicly traded company," The New York Times said. "A $25 billion market value would instantly make Google worth more than Lockheed Martin, the big military contractor; Federal Express, the package delivery service; or Nike, the sports clothing maker."
• The New York Times: Google Goes Public? The Rich Get Richer (Registration required)

Let's not forget about Google's venture capital backers, including Kleiner Perkins Caufield & Byers and Sequoia Capital. They are sitting pretty, each owning 11 percent to 14 percent of the company, the paper said. Fortune reported that Sequoia's "Michael Moritz, the wily investor whose previous grand slams include early stakes in Yahoo and PayPal" led Sequoia "to invest $12.5 million in Google. If Google goes public at the $8-billion-and-up valuation that investment bankers expect, Moritz and his partners will likely reap hundreds of millions of dollars."

And these two Wall Street giants must be pinching themselves: Google "has tapped Credit Suisse First Boston and Morgan Stanley to lead an eagerly anticipated initial public offering that likely will be announced this week, according to people familiar with the situation," The Wall Street Journal reported in a front-page article today.

"Google's selection of the two big securities firms ends months of intense speculation over who on Wall Street would snag an assignment that is expected to generate investment-banking fees of nearly $100 million and huge bragging rights. An IPO of Google likely will be one of the biggest U.S. public offerings ever and, if successful, could trigger a new wave of IPO filings among other technology companies," the paper said.

So why is Google's IPO different than that of Internet companies that went public in the Internet boom only to crash and burn during the bust? Sure, Google's stock could soar to inflated levels, only to wither later on, but look to the Journal for this explanation: "While many investors were burned by high-flying technology IPOs that crashed, Google is expected to have a successful offering in part because the company is far more established than so many other Internet companies that went public."

And more: "Google's brand name is expected to go a long way in attracting professional investors and small individuals alike. But any effort by Google to include an unusual component, such as an online sale of shares to individual investors, which management has pushed for, could create some bumps. Google, for its part, is intent on crafting an IPO so that individual investors, not just big institutional investors, could buy shares, the people say. Under the online option being discussed, individuals would place orders directly, instead of through a broker. Many investment bankers have been leery of that unconventional approach."
• The Wall Street Journal: For Hottest IPO in Years, Google Taps CSFB and Morgan Stanley (Subscription required)
• Fortune: Google's Banker

Not everyone is hot-to-trot for Google's IPO. "An IPO can bring riches for employees and currency to make acquisitions. It can also cause big headaches for management, prompt worker defections and put the company at the mercy of investors focused heavily on quarterly profit targets. And for a company as well-known and profitable as Google, analysts and industry executives said, the costs may outweigh the benefits," The Los Angeles Times said today. "In many ways, going public is going to be one of the worst things that could happen to Google," Danny Sullivan, editor of the Search Engine Watch newsletter, told the paper. And Sullivan told people that a Google IPO could mean workers may leave with their newfound riches. "If you start making a whole bunch of Google millionaires," Sullivan asked, "what's keeping the millionaires on the farm?"
• The Los Angeles Times: For Google, Going Public Is Far From A No-Brainer (Registration required)

But a Securities and Exchange Commission (news - web sites) law that requires private companies of Google's size to disclose more information -- reported to be the catalyst behind the timing of the IPO -- could push those concerns aside. "Google will probably take the filing requirement a step further and offer its shares publicly, according to analysts. At least in that case, the company would get some financial benefit from opening up its books, the theory goes," The San Francisco Chronicle reported. "Otherwise, as Stephen Graham, who heads corporate law at the firm Orrick, Herrington & Sutcliffe, put it, 'You get all the pain of being a public company without the capital of being a public company.'"
• The San Francisco Chronicle: With Deadline Near, Google Expected To File For IPO

L'Infringement de Copyright?

Google is already dealing with some of the concerns of a big-time company. France's AXA, "the world's No. 3 insurer, is taking Google Inc. to court next month in the latest trademark challenge to threaten the heart of Google's business model -- advertising. Google is already embroiled in litigation on both sides of the Atlantic over claims that its pay-for-placement service, Adwords, lets clients hijack their competitors' trademarks. But AXA, which posted $86 billion in revenue last year, is the largest company yet to put the matter before a judge," The Associated Press reported. "The growing mass of litigation over trademarks in advertising could weigh on Google's expected multibillion dollar stock market launch, experts say."
• The Associated Press via washingtonpost.com: French Lawsuit Challenges Google (Registration required)

And some more angst over Google's advertising practices: Jonathan Krim, a Washington Post technology reporter, takes issue with Google's sponsored links advertising section. Sponsored link results now look "nearly identical to the regular search results, and the differentiating color background is gone. It's a disconcerting change that breaks accepted design rules about using contrasting sizes and colors to help readers navigate a page. But more disturbing is the apparent creep toward the melding of sponsored and unsponsored search that is so important to avoid. What could possibly be the reason for this change, other than to sow possible confusion?"

More from Krim: "[The] move does not inspire confidence in a company whose next big initiative is an e-mail system that will present sponsored links next to individual pieces of mail, based on the content of each message. This has sent some privacy advocates into orbit, even though Google insists that no humans will scan the e-mail -- only computers will do this. The site has put up a preview of what these ads will look like: gmail.google.com/gmail/help/screen2.html. I'm not one of those who thinks this is the end of privacy as we know it ... But as Google prepares for a much anticipated initial public offering, I hope it remembers that it achieved success by keeping its search untainted by ads and putting its users' needs first."
• The Washington Post: GMail Deepens Google's Advertising Flirtation (Registration required)

Google co-founder Sergey Brin told The Boston Globe about the 1 gigabyte of storage space: "It was originally designed for me, basically," said Brin, who the Globe said "wanted a more convenient way to deal with the roughly five gigabytes of e-mail in his own inbox. But the idea has infuriated Internet privacy groups like London-based Privacy International, which has filed complaints with the European Union and 16 European nations in an effort to force major changes in the service. Gmail's critics say that in its present form, Gmail will lead to a vast concentration of personal information onto a single Internet service."
• The Boston Globe: Where Are You Now?

In other Google news, the company is ramping up its research and development efforts in Japan. Recall that eBay and Google rival Yahoo are among the Internet companies eyeing expansion efforts and market opportunities in Asia.
• CNET's News.com via ZDNet UK: Google To Launch Tokyo Lab

Shiny Happy Apple

Apple's Steve Jobs and the runaway success of the company's iPod music player and digital music strategy were the focus of an article on the front of The New York Times business section yesterday. Jobs comes out glowing, not just with his hand in the company's digital entertainment innovations, but also with his work at his Pixar Animation Studios, as chronicled in the article. An excerpt: "In just two and a half years, Mr. Jobs, Apple's chief executive, has managed to take a well-designed hand-held gadget, add software connecting it to Macintoshes and Windows-based personal computers and convince the recording industry that he has found an elegant solution for ending its nightmare of digital piracy. In doing so, he has shifted the emphasis of Apple from what made it famous -- hip, even lovable computers -- to what he hopes will keep it relevant and profitable in the future: products for a digital way of life. In fact, the wild success that Mr. Jobs has enjoyed with the iPod may have come in the nick of time. For all the acknowledged design and ease-of-use advantages of the Macintosh, Apple's overall PC business is still growing more slowly than that of its Microsoft- and Intel-based competitors."
• The New York Times: Oh, Yeah, He Also Sells Computers (Registration required)

More happy iTunes coverage from CNET: "Launched a year ago Wednesday with a blaze of publicity, the service effectively kick-started a languishing digital music business. Over the next year, Sony, Microsoft and Virgin all are aiming at the market. Yahoo is expected to throw its hat into the ring, and AOL may open its own store, instead of pointing its subscribers to iTunes as it currently does. Even the major record labels are excited--a dramatic reversal for an industry that had previously seen Internet downloads as a threat to their business, rather than an opportunity for growth," the news service said.

"iTunes has been incredibly valuable," Larry Kenswil, president of Universal Music's eLabs division, told News.com. "It has changed the debate, changed the buzz, changed people talking about record companies putting up a wall" against digital music.
• CNET's News.com: iTunes Ushers In A Year of Change

USA Today writes more about the competitive landscape that Apple now faces. "Sony joins the fray next month with its Connect service, and Microsoft says it will launch a download store later this year. Apple dominates online music with an estimated 50% market share. Its iPod is the best-selling portable digital music player. But Internet analysts suggest the next year may not be as rosy as the first. The increased competition -- Sony (SNE) and Microsoft (MSFT) aren't exactly start-ups -- may make serious inroads," the paper said.
• USA Today: Rivals Mix Up Digital Music

All of Apple's music strategy success has led to speculation over whether the company will let its music technology play ball with other platforms. Don't bet on it, according to an article in The Seattle Times. "Having devised the must-have gadget of the early 21st century, Apple now faces intense pressure to allow the iPod to work with multiple music services beyond iTunes. RealNetworks Chief Executive Rob Glaser seems to be leading the charge with a recent offer to Apple co-founder Steve Jobs. Let iPod users play music from RealNetworks, Glaser proposed, and Real in turn will tailor its music service to promote the iPod as its player of choice. Nearly two decades ago, Microsoft co-founder Bill Gates and executive Jeff Raikes made a similar suggestion to Apple regarding its then-new Macintosh. Why don't you license Mac technology to other vendors and build in compatibility with Microsoft's DOS operating system, Microsoft suggested. In return, Microsoft would help promote the Macintosh. Suspicious that Microsoft had ulterior motives, including using Macintosh technology for the still-unreleased Windows, Apple rejected the idea," the article reported. "Did Apple learn its lesson? While there are seductive similarities in the two scenarios, it seems unlikely that Jobs is in any hurry to 'open up' the iPod. So far, the primary goal in Jobs' music strategy is to sell iPods."
• The Seattle Times: Apple's iPod Strategy Is Familiar Tune

Accessorize!


Speaking of iPods, the gadgets are so popular that they have spawned their own accessories. "Like street racers who trick out their Hondas with air foils and neon lights, iPod users can buy external speakers, winter jackets or fanny packs for their pricey MP3 players. The options can be daunting: Fan site iPodLounge (http://www.ipodlounge.com) lists 60 different protective cases for those not satisfied with Apple's basic black model," Reuters reported. Check out the tech gadget blog Gizmodo for a look at a Gucci iPod case.
• Reuters: Speakers To Snowboards, iPod Owners Accessorize

http://news.yahoo.com/news?tmpl=sto...040426/tc_washpost/a42958_2004apr26&printer=1
 

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Yes, I've been following this too. I'm particularly intrigued about that guy who put in $200,000 and now it would be worth about 300 million. I figure if I'd had a chance, I probably woulda put in like $5000, so what would that be worth? Oh, only seven and a half million, nothing to worry about. :D

From the estimates that we're seeing about Google's revenues and profits plus the estimates of how much the stock might cost, it doesn't look like the stock will be a good buy, according to any traditional valuation approach. If the company's earnings are about $300 million a year and the stock price is at a level corresponding to a company value of $25 billion, that would mean the P/E ratio would be over 80, which is very very steep -- it would make the stock about 4 times as expensive as the average stock, and double what even a high-flying tech stock might command. And if the company's revenues are about a billion dollars a year, that would make the "price/sales" ratio 25:1. This ratio isn't used as often as P/E, but it's often considered more useful for young, fast-growing tech companies (since profits often don't show up meaningfully for some years), and 25:1 is very, very high, even for a high-flying tech. Microsoft is about 10:1. (Toyota is 4:1, and Honda is 0.6:1. That's right -- less than 1:1.)

But, that said, the numbers aren't outrageous. The P/E ratio would be unusually high, but a lot of tech stocks have had P/E ratios of infinity, because they haven't had any earnings -- at least Google does have earnings. (Or so we presume; we don't really know because of how secretive the company has been.) However, I actually would guess that the result of the stock offering will be an even higher valuation of the company than is currently being estimated -- in which case the stock price might indeed be outrageous.

None of which will probably be enough to make me able to resist getting a little piece of the action. :D
 

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BTW....a couple of easy ways for Google (or somebody else) to enhance searches:

(1) Give actual recognition to upper-case letters. Currently, if you search for the "Red Cross," for example, Google (and I think any other search engine) will also give you anything that talks about just a plain red cross. If you do "Helen Hunt," it'll be cluttered up with a lot of stuff about people named Helen going hunting.

(2) Give actual recognition to spaces (like between words) as being distinct from punctuation. For example, if you search for "Howard Dean," you'll also get lists of first names that include ".......Howard, Dean,......"

Or at least I think those things would be easy. It seems a heck of a lot easier than a lot of what they do already.
 
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