Monday, September 27, 2010

Google reading

What struck me most about The Google Story - an entertaining story of Google and its founding was the universal belief by the founders (and almost all company founders) that by going to the stock market, they lose the ability to control the long term destiny of the company. They believe that the stock market focuses too much on the short term to the detriment of long term which invites the following question: Is the stock market wrong or is the theory that the market knows best wrong? Does the stock market really aggregate all available information (including long term visions of the company) or is it myopic and selective in the information that it incorporates?
Here is my belief: The stock market is inefficient because stock holders and investors have short term horizons at least shorter than the founders. Quarterly scorecards of fund performances accentuate this short term outlook. This inefficiency is made greater by day traders and algorithmic trading. Investors who buy and hold for the long term are the ultimate losers in this set up.

The issue of control ultimately resulted in Google deciding to auction its IPO instead of going through traditional channels. It also resulted in creating different classes of shares so that Brin and page retained control. I had expected to learn more about the IPO as well as its server farms but this book revealed little beyond what I had already read in the press and so this was somewhat disappointing. While it was mainly positive about Google, I thought it treated the Google-China issue fairly. I was extremely surprised to read how much revenue it obtained from advertising and how it went about doing it. Like many others I thought of Google as a search engine and the revenues were from licensing of its search technology.

Of course, I am now extremely aware of all the ads that pop up whenever I view a video on Youtube as well as all the sponsored ads on the search results. I am also uncertain how the market is responding to how far it has flung itself with all its various 'experiments' e.g. Android, Froogle, etc. As such, when I read the following article about Google's efforts to help the publishing industry, I was surprised. Again, I see this as a long term and uncertain strategy that would surely be punished by the market but I think that it's other successes has allowed this experiment to proceed without a penalty. Yet, I wonder, would any company other than Google be able to pursue this without stock market retribution?

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