Google trading may begin today

Google Inc., the Internet search engine company that has sparked renewed visions of a technology stock market bonanza for more than a year, is expected to begin trading on the Nasdaq market in the immediate future, possibly as early as today.

But the number of shares to be offered to the public has been substantially reduced, and the expected size of the payoff for the Google founders and early investors will be significantly smaller than earlier expectations.


Google stock will trade at $85 a share - a far cry from the $135 the company originally was hoping to get. The stock-sale bounty is expected to be more than $1.67 billion, but far less than the nearly $3.5 billion that had been hoped for.

Google officials lowered their estimate of the anticipated price and number of shares the company planned to sell in a filing with the Securities and Exchange Commission yesterday morning, and closed its auction in the afternoon after the SEC gave final approval to the stock sale. Before trading could begin, Google had to set the final price, alert bidders and allocate shares.


Some said the price drop indicates Internet stocks are still too risky, several years after the dot-com bubble burst. Others said Google's business potential has been overestimated, and still others said the company is worth more money. The only thing analysts agreed on was that there has been a lot of noise about Google.

Google, which won the hearts of Internet users by quickly delivering the most satisfying results to those searching for information, has evolved from a technology company into an advertising vehicle with popularity that competitors have yet to match.

But other search engines are closing in and investors have had to consider whether Google can preserve its preeminent position, whether advertisers will continue to do business on search engines, and - perhaps most importantly - whether Google can overcome the criticism about its initial public offering to keep its beloved status.

Media have dissected Google daily in the weeks leading to its stock offering, chronicling every strange twist and turn (and there have been many) on its four-month journey to becoming a public company.

Analysts called its initial stock estimate overpriced, reporters called the business a "wunderkind," and fans left declarations of love for Google all over Internet message boards.

It's a business wonder with some reason, some experts say.

David Berkowitz, a search engine marketer with icrossing in Arizona, likens it to a 21st- century phone book - "this incredibly successful advertising business and yet no one who really uses it on the consumer end thinks of it that way. They just think it's the most convenient way to find something."

Cautious about future


But rich as Google's promise is, investors are cautious about its future.

The company originally estimated its stock would cost between $108 and $135 a share, giving the Mountain View, Calif.- based company a market capitalization of as much as $36 billion.

But its Dutch auction designed to set the final price returned lower than expected results, and Google readjusted its rate yesterday, causing shareholders to hold back.

"In view of this new price range, the selling shareholders are reducing the shares they expect to sell" to 5.46 million from 11.55 million, Google said in an e-mail to investors yesterday.

The most Google can hope for in market capitalization now is $23 billion, which cuts the two founders' worth to a potential high of $3.2 billion apiece from $5.1 billion.

Controversy has dogged Google in recent weeks.


The company was accused of forgetting to register - and therefore illegally distributing - 23 million shares, and violating an SEC "no talking" period by giving an interview to Playboy before filing the paperwork to go public. The SEC is inquiring into both situations.

"It's almost like a conspiracy," said analyst Gene Walton of Walton Holdings LLC in New York. "If anything goes wrong, let's make sure it's highly publicized."

Founded in 1998, Google built its reputation on its advanced search engine technology. Its Web site is uncluttered, the results solid and the number of pages searched more than any other engine.

"The hype about it comes from a couple of things. One is that Google is genuinely popular," said Derek Bambauer, a fellow at the Berkman Center for Internet & Society at Harvard Law School.

People like it because it returns the most relevant results, separates out paid advertising and provides a streamlined interface that loads quickly.

It's a formula that seems to work. Bambauer said Microsoft's demo Web site for its coming search engine "looks almost exactly like Google's."


But other companies offer services on their pages that Google doesn't, such as driving directions and weather reports, as well as access to pages Google can't reach. A new Web site, called, lets users search two engines at once, and displays the difference in the results. In a simultaneous search for the word "Baltimore," Yahoo Inc. returned four results that Google didn't have in its top 10, while Google returned five results that Yahoo missed.

Still Google is the favorite search site for more than 50 million Americans - 47 percent of the population that uses online search, according to the Pew Internet & American Life Project, a nonprofit research center in Washington. Yahoo is in second place, with 26 percent.

The technology accounts for some of the difference, analysts say, and the company's image - spurred by a "Don't be evil" motto - makes up for the rest.

"Certainly its lead can't be explained solely by the technology. It's technology is slightly better, but it isn't a quantum leap," Bambauer said. "Google has become in many ways the default, the one that's best known. It's become a brand. It's a verb, the ultimate status symbol."


In the prospectus filing with the SEC, Larry Page - who co-founded Google with University of Maryland graduate Sergey Brin - wrote that "Google is not a conventional company. We do not intend to become one."


They encourage employees to spend one day per week working on individual projects to benefit the company and, according to People magazine, have a roller rink in their headquarters.

But advertisers don't care if Google employees can roller skate during breaks. They only care if Google returns results - literally.

Google makes its money from advertisers whose ads are targeted to search terms. Called "paid search," it's the fastest growing Internet marketing strategy. It has been rising at a triple digit percentage rate for the past few years, analysts said.

"There's very few markets that are growing and hot like the paid search advertising market," Walton said. Still, the growth is expected to drop off in a few years, leaving some to wonder how Google will earn its keep.

Scott Kessler, an equity analyst with Standard & Poor's, expects Google's earnings per share to grow 60 percent annually for the next three to five years, more than any of its competitors including Yahoo Inc., which he predicts will have a 26 percent annual earnings per share growth rate.

But Yahoo is still a safer bet where investments are concerned, he said. It's a more mature company with a proven track record, and it too earns most of its revenue from advertising. It's also closing in on Google's search technology. Yahoo launched its new-and-improved search engine algorithm this year, and Microsoft Corp. is expected to follow this year.


America Online Inc. isn't far behind either. While it uses Google's search technology, it has expanded its advertising offerings, acquiring Baltimore-based for $435 million this summer and announcing increased marketing efforts.


"The most significant issue they have to deal with is competition," Kessler said, "because sooner or later, there's not going to be much difference between the search offering they provide and others. The gap is going to narrow."

In anticipation of the competition, Google has added services, though search will remain the focus, the founders say. Google recently added shopping (called "Froogle"), social networking (at, and is launching e-mail (called Gmail) in an effort to catch up to others.

While still far behind in service variety - perhaps purposely - Google has something the others don't: its name.

"You have here a company that is kind of iconic" and resistant to analogies, Kessler said. "Google really is the next Google. It's changed the way we interact and gather information and transact business. It's a different breed of company."