Google IPO? No Thanks (2004)(fool.com)
fool.com
Google IPO? No Thanks (2004)
http://www.fool.com/investing/general/2004/04/30/google-ipo-no-thanks.aspx
17 comments
Seriously. This article was published a year before Maps existed. Less than a month after the Gmail beta started. Facebook was less than six months old.
This was all seven years ago! How times have changed.
This was all seven years ago! How times have changed.
What's really crazy for me is that I've been at my current startup for over half of that time span, and that I've been into Rails almost the full span.
That argument didn't make a lot of sense then either. The specific algorithms that Google had patented gave it a runaway lead in implementing the kind of index that we now recognise as a crucial element of relevance. Anyone with knowledge of the domain could see that this was a revolution.
Even odder is that there's no mention in the piece about the long-raging battle with Yahoo over the Overture ad-bidding IP, a huge achilles heel for Google at the time which somehow just melted away 10 days before the IPO (but 4 months after this article).
Even odder is that there's no mention in the piece about the long-raging battle with Yahoo over the Overture ad-bidding IP, a huge achilles heel for Google at the time which somehow just melted away 10 days before the IPO (but 4 months after this article).
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It's not an unreasonable opinion. Google is dependent on a single product, there's almost no barrier for users or advertisers to switch, and most of Google's proprietary technology in software and datacenter design is completely opaque to investors.
I'm not sure Google is a slam-dunk investment even today. They have their fingers in a lot of pies, but the company is still entirely dependent on an advertising product that hasn't changed substantially in years. If the market changed in a way that disrupts adwords, things could go south quickly. They remind me a bit of Microsoft - very oriented on protecting a lucrative monopoly, but in doing so their other products tend to be designed to support the monopoly, not generate revenue on their own.
I'm not sure Google is a slam-dunk investment even today. They have their fingers in a lot of pies, but the company is still entirely dependent on an advertising product that hasn't changed substantially in years. If the market changed in a way that disrupts adwords, things could go south quickly. They remind me a bit of Microsoft - very oriented on protecting a lucrative monopoly, but in doing so their other products tend to be designed to support the monopoly, not generate revenue on their own.
If you look at what they actually have in AdWords, it's not easy to see how it could be seriously disrupted. You're right that Google's real monopoly is not on search but on their immense network of advertisers and content sites, which has economies of scale built in that benefit everyone involved. Simply by being the biggest, Google's network is the best. The only thing that has come close to challenging that is the walled garden of Facebook, because of its unprecedented scale. Now Facebook surely has some growing left to do but even they would still need to pretty much cannibalise over half of the web's pageviews to have a shot at usurping Google's ad network.
Compare Microsoft, whose monopoly positions are relatively brittle. As we see with IE9, if Microsoft slips to even 66% market share (that's the current US market share for Google Search[1]), they need to start thinking seriously about interoperability. An advertising monopoly is something much more fluid. I think Google would have to majorly drop the ball to get toppled in the medium term (maybe failing to respond to an extreme price challenge over several years from a large rival network, or some really catastrophic privacy blunder).
[1] http://comscore.com/Press_Events/Press_Releases/2011/2/comSc...
Compare Microsoft, whose monopoly positions are relatively brittle. As we see with IE9, if Microsoft slips to even 66% market share (that's the current US market share for Google Search[1]), they need to start thinking seriously about interoperability. An advertising monopoly is something much more fluid. I think Google would have to majorly drop the ball to get toppled in the medium term (maybe failing to respond to an extreme price challenge over several years from a large rival network, or some really catastrophic privacy blunder).
[1] http://comscore.com/Press_Events/Press_Releases/2011/2/comSc...
These days they have a good hold on their position. But back then, if IE had shipped with ad-blockers built in, Google would have had a serious struggle.
Google went public with a $25B market cap? That puts the absurd valuations you see thrown around today into perspective.
Even more amazing, I think they only raised 75M total from VCs prior to their IPO.
Not everyone is a Google.
Kudos to the motley fool for keeping that one on their website.
Easy to make fun of it now, but the domain "fool.com" fitted well for that article :)
Being wrong doesn't make you a fool. He clearly didn't have some of the insider SEO knowledge that some commenters are mentioning, but does not seem to me to be an unreasonable perspective.
It's just his opinion advising caution. Not bad advice, really.
On the other hand, Citigroup analyst Glen Yeung was commenting that NVDA runs the risk of having "excess inventory" for tablets. I honestly have no idea how that can happen considering production for Tegra 2 is barely out the gate.
http://www.marketwatch.com/story/nvidia-shares-jump-on-upbea...
On the other hand, Citigroup analyst Glen Yeung was commenting that NVDA runs the risk of having "excess inventory" for tablets. I honestly have no idea how that can happen considering production for Tegra 2 is barely out the gate.
http://www.marketwatch.com/story/nvidia-shares-jump-on-upbea...
Best sentence: "As rivals such as Yahoo! that have access to all their other internal resources catch up, what will the competitive pressure on Google be then?"
My favourite was about how Microsoft "will include an algorithmic search engine bundled in its next generation of Windows products, due out next year."
After seeing them on PBS around '98 The Motley Fool was to me at 19 what I'm sure Jim Cramer was to many folks around '05: a contrast to everything else at the time. I thought they were young, funny, and old-fashioned, which was appealing.
But the disjointed approach soured me on them. I feel like they wrote and spoke about value investing but then sold newsletters on timely hot picks.
So, in my mind they fell back in with everyone else contributing noise.
But the disjointed approach soured me on them. I feel like they wrote and spoke about value investing but then sold newsletters on timely hot picks.
So, in my mind they fell back in with everyone else contributing noise.
don't like self-linking, but I wrote about this on my blog a while ago, with a link to old media articles being pessimistic about the Google IPO, quotes from 'tech experts' and the comparison to Facebook, Zynga and the new crop.
so instead of a comment, a link:
http://nikcub.appspot.com/the-google-ipo-skeptics
so instead of a comment, a link:
http://nikcub.appspot.com/the-google-ipo-skeptics
To call this foolish is pure hindsight bias.
Winning the lottery doesn't mean it was smart to play. (To get technical, it was dumb to play ex ante but smart to play ex post. Or, more simply: hindsight is 20-20.)
Though I admit it's fun to play shoulda/woulda/coulda, as I did myself recently: http://messymatters.com/babygoog
Winning the lottery doesn't mean it was smart to play. (To get technical, it was dumb to play ex ante but smart to play ex post. Or, more simply: hindsight is 20-20.)
Though I admit it's fun to play shoulda/woulda/coulda, as I did myself recently: http://messymatters.com/babygoog
The key misunderstanding of google here was in thinking that google was merely "better algorithmic search" and nothing more. In truth Google's unique advantages come down to competency in three unique areas: state of the art algorithmic search; cutting edge software engineering; and revolutionary data center management.
Google didn't win the search provider war by providing merely better search results. It won by providing better results faster with greater reliability and at lower cost than the competition. Better due to better algorithms and smarter filtering. Faster due to solid software engineering (sharding, map reduce) using distributed computing. Cheaper because the distributed computing aspect was enabled not via traditional beefy and expensive servers managed largely manually by humans but by larger numbers of low cost commodity hardware based systems largely managed via automated processes.
Each of these aspects is a strong asset for any company, but google had all 3. What's more, each of these competencies are complementary and self-reinforcing with the others. State of the art distributed computing systems and revolutionarily cheap clustered computing systems go together like peanut butter and chocolate. What's more, low cost/high performance server infrastructure means that it's possible to dedicate more of the profits towards improving the search algorithms and the software engineering expertise, creating a positive feedback loop that allows google to out-accelerate its competition.
A lot of companies have been able to match google roughly on a few aspects, but no company has been able to clone google's complete triumvirate of core skills to any significant degree.
Many of the strongest companies in the tech field have a similar array of synergistic but unlikely multiple core competencies. Apple has strong engineering and strong aesthetic and design sensibilities. Amazon has strong software and IT engineering abilities and strong logistics management at scale (to the same degree, perhaps even more so, that led walmart to such success).
Google didn't win the search provider war by providing merely better search results. It won by providing better results faster with greater reliability and at lower cost than the competition. Better due to better algorithms and smarter filtering. Faster due to solid software engineering (sharding, map reduce) using distributed computing. Cheaper because the distributed computing aspect was enabled not via traditional beefy and expensive servers managed largely manually by humans but by larger numbers of low cost commodity hardware based systems largely managed via automated processes.
Each of these aspects is a strong asset for any company, but google had all 3. What's more, each of these competencies are complementary and self-reinforcing with the others. State of the art distributed computing systems and revolutionarily cheap clustered computing systems go together like peanut butter and chocolate. What's more, low cost/high performance server infrastructure means that it's possible to dedicate more of the profits towards improving the search algorithms and the software engineering expertise, creating a positive feedback loop that allows google to out-accelerate its competition.
A lot of companies have been able to match google roughly on a few aspects, but no company has been able to clone google's complete triumvirate of core skills to any significant degree.
Many of the strongest companies in the tech field have a similar array of synergistic but unlikely multiple core competencies. Apple has strong engineering and strong aesthetic and design sensibilities. Amazon has strong software and IT engineering abilities and strong logistics management at scale (to the same degree, perhaps even more so, that led walmart to such success).
Note also that this is just one member's opinion that was published on Motley Fool. That doesn't mean the whole MF team was thinking along the same lines at the time.
In fact, I only see a few old writings by the author. It seems he was only active in the member forums.
In fact, I only see a few old writings by the author. It seems he was only active in the member forums.
Bill Mann failing to realize the potential of science & technology is not new. https://secure.wikimedia.org/wikipedia/en/wiki/History_of_Mi...
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I wondered what the author does now for a living. I almost sent him the article. It seems like now he is part of the AOL team through the HPost acquisition.
I've been in this position many times. I remember when I first heard of Amazon in 1994. I remember when Google went public. I knew google was a great company, because I was in the search industry, but I didn't invest. I didn't feel it was in my circle of confidence. I remember when Apple was at $13 and had $6 of cash in the bank, and I still passed.
I don't regret any of that. Ok, well, I do, it stings a little. I'm greedy, I can't deny it.
But when I have invested, after a few years stumbling I ended up making more than a %100 return a year for many years of the last decade. I saw the housing boom before it happened (when Motley fool was recommending real estate) and profited from the boom and the bust (Which really started in 2006, though wasn't in the popular consciousness until 2008.)
And then I got out in 2007, after my best year ever. Why? The market was not acting the way I believed was rational (or the rational irrationality typical of the market that creates inefficiencies allowing me to profit).
It was a tough decision, getting out in 2007. But I felt great when just the next year it became clear my timing was perfect. (This is not a super power on my part, it was just good timing. I could have made more by waiting 6 months, but by comparison, I did fantastic.)
These hard decisions may look foolish in retrospect or like genius. I don't fault fool.com for being cautious about google.
The point of investing is that you have to do it based on rationality and the calculated return given the amount of risk.
A high price and a low confidence factor in the underlying business can mean a bad investment. Consequently a 100 year old company that is "boring" and thus unpopular can produce a massive return, because the price and the risk is low.
Jumping in to ride up over valued companies (like google was at least for many of those years) is what led to the original dotcom. I lost money on a couple of my positions there because I fell into that trap... and learned my lesson.
So. Don't look at this as stupidity. It is wise to pass. You do better by not taking flyers on things that don't seem like mathematical sure things (risk factored in) within your circle of confidence. I'm no investing genius, but I am disciplined... and that's all it takes.
On fool.com: The motley fool was a great and useful website for investing in the 1990s. When the dotcom boom was happening they advised caution (though they made their rep in the early days by recommending companies like iomega). Then around 2000-2001 they seemed to have a change in management, or at least a change in focus.
They switched from being prudent contrarian investment advice, to more mainstream and more "opinion" oriented.
It is kind of impressive to think that I stopped going there a decade ago. I literally haven't visit that site for 10 years, and I used to spend a lot of time there, to the point where I had quite a following.
I don't regret any of that. Ok, well, I do, it stings a little. I'm greedy, I can't deny it.
But when I have invested, after a few years stumbling I ended up making more than a %100 return a year for many years of the last decade. I saw the housing boom before it happened (when Motley fool was recommending real estate) and profited from the boom and the bust (Which really started in 2006, though wasn't in the popular consciousness until 2008.)
And then I got out in 2007, after my best year ever. Why? The market was not acting the way I believed was rational (or the rational irrationality typical of the market that creates inefficiencies allowing me to profit).
It was a tough decision, getting out in 2007. But I felt great when just the next year it became clear my timing was perfect. (This is not a super power on my part, it was just good timing. I could have made more by waiting 6 months, but by comparison, I did fantastic.)
These hard decisions may look foolish in retrospect or like genius. I don't fault fool.com for being cautious about google.
The point of investing is that you have to do it based on rationality and the calculated return given the amount of risk.
A high price and a low confidence factor in the underlying business can mean a bad investment. Consequently a 100 year old company that is "boring" and thus unpopular can produce a massive return, because the price and the risk is low.
Jumping in to ride up over valued companies (like google was at least for many of those years) is what led to the original dotcom. I lost money on a couple of my positions there because I fell into that trap... and learned my lesson.
So. Don't look at this as stupidity. It is wise to pass. You do better by not taking flyers on things that don't seem like mathematical sure things (risk factored in) within your circle of confidence. I'm no investing genius, but I am disciplined... and that's all it takes.
On fool.com: The motley fool was a great and useful website for investing in the 1990s. When the dotcom boom was happening they advised caution (though they made their rep in the early days by recommending companies like iomega). Then around 2000-2001 they seemed to have a change in management, or at least a change in focus.
They switched from being prudent contrarian investment advice, to more mainstream and more "opinion" oriented.
It is kind of impressive to think that I stopped going there a decade ago. I literally haven't visit that site for 10 years, and I used to spend a lot of time there, to the point where I had quite a following.
For me the turning point of The Motley Fool was when they started to send out those loooong 12 page email marketing pitches that reminded me too much of a penny stock pitch. ALL CAPS PROFITS!!!! 127% Growth! They still send them out.
It took me too long to realize the site I had loved was gone.
It took me too long to realize the site I had loved was gone.
Is there anyone currently giving the sort of advice that motley fool used to give before they changed for the worse?
It is not quite the same as the old Motley Fool as it focuses on Global Macro only, but there is Macro Man. Now written by Team Macro Man, a group of macro people that work in London (perhaps elsewhere for a variety of investment banks, former investment banks and/or hedge funds. I highly recommend it; not quite the same but of the same gist.
http://macro-man.blogspot.com is their URL.
http://macro-man.blogspot.com is their URL.
Not that I'm aware of, but I have long since graduated from seeking such advice.
I think the best source of investment insight comes from studying Warren Buffett's methodology. Mary Buffett wrote a book called "Buffetology" which is really accessible and quite good. An author by the name of Timothy Vick has written several books on buffett. (How to pick stocks like warren buffet is a good one.) For awhile there I bought all the ones I could find, and it was probably the best $100 I spent.
Eventually I created a spreadsheet that I'd use to do my net-present value analysis. I'd take the stock's price, the historical growth, my estimated growth, and work back to figure out what my projected return would be in 5 years.
You know you've mastered investing when you're able to predict these returns pretty accurately, though it takes time to know if you were right or not. It is ok, there is no hurry, you can just put money aside and save it (though I'd hedge against inflation- I'd store it in gold or silver these days.)
Once understanding investment, economics came to play a huge role in my understanding of how things worked and where things are going.
The mises institute: http://mises.org is the best source of daily informative articles on economics. They were talking about the housing bust around 2000-2001. Mises himself predicted the great depression, the invasion of Austria (where he was from, and where his fellow economists laughed when he said that by the same time the next year the Nazis would have control) etc. I don't read it all the time, and just read articles that I find useful.
The Mises institute has a lot of books for free from Mises and Rothbard that you can download, and from many other economists.
But probably the best book on economics to read is "Economics in one lesson" by Henry Hazlitt. You can get it in PDF form here, I believe: http://www.hacer.org/pdf/Hazlitt00.pdf
Studying Buffet is investing 101, studying economics is investing 201.
I also read a lot of books like "The gorilla game" and "the wealthy barber" and stuff like that. They were less useful than the Buffett books, but they all had nuggets of good advice.
Eventually, I graduated to Options as a strategic investment. A $100 book that became my bible.
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Please note also, I'm out of the markets right now. I think the outlook for the US is not good, capital controls are coming and that there's going to be a major, and very painful, rebalancing of the global economic structure.
Next time I buy stocks I expect they will be on an asian exchange.
I think the best source of investment insight comes from studying Warren Buffett's methodology. Mary Buffett wrote a book called "Buffetology" which is really accessible and quite good. An author by the name of Timothy Vick has written several books on buffett. (How to pick stocks like warren buffet is a good one.) For awhile there I bought all the ones I could find, and it was probably the best $100 I spent.
Eventually I created a spreadsheet that I'd use to do my net-present value analysis. I'd take the stock's price, the historical growth, my estimated growth, and work back to figure out what my projected return would be in 5 years.
You know you've mastered investing when you're able to predict these returns pretty accurately, though it takes time to know if you were right or not. It is ok, there is no hurry, you can just put money aside and save it (though I'd hedge against inflation- I'd store it in gold or silver these days.)
Once understanding investment, economics came to play a huge role in my understanding of how things worked and where things are going.
The mises institute: http://mises.org is the best source of daily informative articles on economics. They were talking about the housing bust around 2000-2001. Mises himself predicted the great depression, the invasion of Austria (where he was from, and where his fellow economists laughed when he said that by the same time the next year the Nazis would have control) etc. I don't read it all the time, and just read articles that I find useful.
The Mises institute has a lot of books for free from Mises and Rothbard that you can download, and from many other economists.
But probably the best book on economics to read is "Economics in one lesson" by Henry Hazlitt. You can get it in PDF form here, I believe: http://www.hacer.org/pdf/Hazlitt00.pdf
Studying Buffet is investing 101, studying economics is investing 201.
I also read a lot of books like "The gorilla game" and "the wealthy barber" and stuff like that. They were less useful than the Buffett books, but they all had nuggets of good advice.
Eventually, I graduated to Options as a strategic investment. A $100 book that became my bible.
--
Please note also, I'm out of the markets right now. I think the outlook for the US is not good, capital controls are coming and that there's going to be a major, and very painful, rebalancing of the global economic structure.
Next time I buy stocks I expect they will be on an asian exchange.
Good advice on the stocks, but for those not in the know, mises.org presents a sort of ultra-libertarian point of view, and pretty much only that. In other words, they're not likely to ever present ideas differing much from their own.
While they may or may not have some good ideas, it's not really mainstream economics, and there are some discussions covering that on the net that are worth reading prior to reading their material.
While they may or may not have some good ideas, it's not really mainstream economics, and there are some discussions covering that on the net that are worth reading prior to reading their material.
And one of Ludwig's chief chips was that we should all go back to the gold standard, so take with a grain of salt the argument that you should put your money in gold and silver to hedge against inflation (they are both in long-run bull markets).
So where do you park your money these days, if you're no longer in US stocks?
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It's amazing to think that this was only a handful of years ago.