Kool-Aid & the Google IPO

John Battelle has written an engaging book about Google's origins and the implications that search will have on the future of media and technology.The early chapters of the book, in which Battelle focuses on recounting narrative, are meticulously researched and wonderfully presented. It was a breeze to read these sections of the book.

As we move towards debating issues like privacy concerns and the future of Google, Battelle's love of Google begins to overwhelm his skilled storytelling, and I found this distracting. I was struck, in particular, by his interpretation of the IPO. Battelle sets the reader up by recounting the various ways in which Google flaunted Wall Street norms in the lead up to its IPO. The most visible example is Google's choice to use a Dutch Auction instead of a more traditional roadshow underwriting process.He rightfully points out that these decisions were consistent with a general culture of non-conformity, and a little arrogance, at Google.

In the end, Battelle observes the following, after Google went public at a price of $85 a share.

What happened next put to rest nearly every doubt about Google's offering. By the end of the day, the stock had rocketed to nearly $100. By the next day, GOOG was at $108.31- breaking into its original predicted range.

Bizarrely, and illogically, Battelle seems to have convinced himself that this massive move in the first two days (a 27% increase) is evidence that Google had prevailed with its quirky and unconventional ways. On the contrary, while the larger issues of corporate governance seem to have played out positively since (although its worth noting that no couterfactual is available for testing), the initial move in the stock price seems to be a strong indication that the Dutch auction was suboptimal. Indeed, Google left a tremendous amount of money on the table. Presumably, Google avoided a traditional underwriting process to avoid exactly this kind of 'pop', and they ended up with a pop that was significantly higher than is typical for IPOs. Battelle fails to make this fairly straightforward observation, and in doing so, erodes his credibility when we think about his writing on Google in China and Google and privacy.