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An inside look at how content payment models and systems are evolving in an era of rapidly changing markets and publishing requirements.
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ContentBloggerTM - Content eCommerce |
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| Saturday, May 01, 2004 |
The Duality of Google
Google's filing of its S-1 for its upcoming IPO is being treated as both a major investing opportunity and as a major shift in the philosophy of running a public company. The press has amply covered the nonstandard statements in the founders' letter that prefaces the S-1 filing. To select a couple of issues covered in the letter: founders Larry Page and Sergey Brin say they will not manage the company with a primary focus on quarterly earnings nor will they provide earnings guidance, which in today's financial markets can result in 'earnings surprises' that generally depress stock prices. Rather, they plan to manage for the long term success of the company. An important element of their new approach to financial management is the plan to issue two classes of stock: standard Class A shares with 1 vote per share; and Class B shares available to the founders and others on a restricted basis that will have 10 votes per share. Note that this 2-tier structure has been used in the past by family-run newspaper companies that wish to maintain editorial and financial control over their publishing empires.
Second, they say they will continue their hiring practice of seeking the best and the brightest on an academic standard, and will strive to maintain a working environment that nurtures intellectual pursuits and productive working conditions. These are laudable goals and I hope that they are able to make some impression on Corporate America, which too often seems to prefer to hire worker-bees assigned a specific task, and treats workers like dispensable drones. Hardly an environment that encourages creative thinking from so-called knowledge-workers.
In addition to the duality of using Wall Street to raise capital while rejecting some of the rules of the game, Google faces the duality of being a technology-oriented company that focuses on building the best system for organizing and accessing information, whereas they are almost totally dependent on advertising to support their company: 95% of their revenue comes from advertising. Advertising is a much different business than search technology development and it requires competitive sales, support, reporting, and relationship-building functions. In the S-1, Google reports that they are contracting out their "worldwide billing, collection and credit evaluation functions. The third-party provider will also track, on an automated basis, our growing number of AdSense revenue share agreements." Certainly, it's not unusual for companies to outsource administrative systems, but in this case it is striking because it demonstrates that Google isn't developing expertise in the function on which it is so dependent for revenue. However, this duality isn't necessarily a problem provided that their mission of providing relevant results to users is aligned with the objectives of a large number of advertisers (i.e., placing their ads in front of interested customers). For the near term, there is little doubt that the popularity of search and Google's dominant position in the search market will result in continued success for the AdWords program. However, with the AdSense program, I envision much more competition from established and new ad-serving networks that can provide access to well-defined segments of related content and user-populations. Google may have a big advantage with advertisers who want a broad-brush approach to generating leads. But, it will be more difficult for Google to compete in niche areas where specialized knowledge of content sources and a personal touch matter.
Now that the registration statement has been filed, we can all look forward to the news craze that occurs when the auction for the shares is announced. In the meantime, I want to find out what company has been contracted with for the billing infrastructure. Might be a good investment.
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posted by Janice McCallum at
2:01 PM |
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