What Google Can't Tell Us About Internet Auctions (and What it Can)

No initial public offering in the history of the United States capital markets has been as intensely discussed as the August 2004 offering of Class A Common Stock of Google, Inc. From the announcement of the IPO itself to the details of its innovative Internet auction to the post-IPO share price, the investing world has been continuously discussing Google for almost a year. One aspect of Google's IPO that received much attention before the offering was the fact that Google chose an online auction process as the mechanism to distribute its original IPO shares. In keeping with Google's nonconformist image, the founders of Google chose an IPO mechanism that is used only once or twice a year in the U.S. Many detractors of the traditional bookbuilding mechanism declared that the Google auction foreshadowed an upheaval in the cliquish investment banking industry. Although Google's auction was predicted to be the beginning of a trend, if anything, the auction process was blamed for low investor demand in the weeks leading up to the offering and a last-minute slash in the price range. In addition, in the year since the Google auction, only two other issuers have launched an online IPO.As observers of the intersection of the Internet and the securities markets, we are left to wonder whether the Google auction was a harbinger of change, a meaningless electronic blip, or even worse, a marketing event for the public relations-conscious issuer. This article analyzes this historic IPO and explores what important the Google IPO has for the campaign for online IPO auctions. Unfortunately, because Google was a unique issuer in many respects, both positive and negative, its offering cannot be used to herald an immediate sea change in the bookbuilding IPO market. However, Google's auction will only assist other issuers in negotiating with underwriters for alternative offering mechanisms