[FoRK] Re: Page and Brin release Google "Owner's Manual"

Contempt for Meatheads jbone at place.org
Thu Apr 29 15:29:00 PDT 2004


Thx, L.  For the archive, the complete text:

April 29, 2004

“AN OWNER’S MANUAL” FOR GOOGLE’S SHAREHOLDERS

INTRODUCTION

Google is not a conventional company. We do not intend to become one. 
Throughout Google’s evolution as a privately held company, we have 
managed Google differently. We have also emphasized an atmosphere of 
creativity and challenge, which has helped us provide unbiased, 
accurate and free access to information for those who rely on us around 
the world.

Now the time has come for the company to move to public ownership. This 
change will bring important benefits for our employees, for our present 
and future shareholders, for our customers, and most of all for Google 
users. But the standard structure of public ownership may jeopardize 
the independence and focused objectivity that have been most important 
in Google’s past success and that we consider most fundamental for its 
future. Therefore, we have designed a corporate structure that will 
protect Google’s ability to innovate and retain its most distinctive 
characteristics. We are confident that, in the long run, this will 
bring Google and its shareholders, old and new, the greatest economic 
returns. We want to clearly explain our plans and the reasoning and 
values behind them. We are delighted you are considering an investment 
in Google and are reading this letter.

Sergey and I intend to write you a letter like this one every year in 
our annual report. We’ll take turns writing the letter so you’ll hear 
directly from each of us. We ask that you read this letter in 
conjunction with the rest of this prospectus.

SERVING END USERS

Sergey and I founded Google because we believed we could provide a 
great service to the world—instantly delivering relevant information on 
any topic. Serving our end users is at the heart of what we do and 
remains our number one priority.

Our goal is to develop services that improve the lives of as many 
people as possible—to do things that matter. We make our services as 
widely available as we can by supporting over 97 languages and by 
providing most services for free. Advertising is our principal source 
of revenue, and the ads we provide are relevant and useful rather than 
intrusive and annoying. We strive to provide users with great 
commercial information.

We are proud of the products we have built, and we hope that those we 
create in the future will have an even greater positive impact on the 
world.

LONG TERM FOCUS

As a private company, we have concentrated on the long term, and this 
has served us well. As a public company, we will do the same. In our 
opinion, outside pressures too often tempt companies to sacrifice 
long-term opportunities to meet quarterly market expectations. 
Sometimes this pressure has caused companies to manipulate financial 
results in order to “make their quarter.” In Warren Buffett’s words, 
“We won’t ‘smooth’ quarterly or annual results: If earnings figures are 
lumpy when they reach headquarters, they will be lumpy when they reach 
you.”

If opportunities arise that might cause us to sacrifice short term 
results but are in the best long term interest of our shareholders, we 
will take those opportunities. We will have the fortitude to do this. 
We would request that our shareholders take the long term view.

Many companies are under pressure to keep their earnings in line with 
analysts’ forecasts. Therefore, they often accept smaller, but 
predictable, earnings rather than larger and more unpredictable 
returns. Sergey and I feel this is harmful, and we intend to steer in 
the opposite direction.

Table of Contents Google has had adequate cash to fund our business and 
has generated additional cash through operations. This gives us the 
flexibility to weather costs, benefit from opportunities and optimize 
our long term earnings. For example, in our ads system we make many 
improvements that affect revenue in both directions. These are in areas 
like end user relevance and satisfaction, advertiser satisfaction, 
partner needs and targeting technology. We release improvements 
immediately rather than delaying them, even though delay might give 
“smoother” financial results. You have our commitment to execute 
quickly to achieve long term value rather than making the quarters more 
predictable.

We will make decisions on the business fundamentals, not accounting 
considerations, and always with the long term welfare of our company 
and shareholders in mind.

Although we may discuss long term trends in our business, we do not 
plan to give earnings guidance in the traditional sense. We are not 
able to predict our business within a narrow range for each quarter. We 
recognize that our duty is to advance our shareholders’ interests, and 
we believe that artificially creating short term target numbers serves 
our shareholders poorly. We would prefer not to be asked to make such 
predictions, and if asked we will respectfully decline. A management 
team distracted by a series of short term targets is as pointless as a 
dieter stepping on a scale every half hour.

RISK VS REWARD IN THE LONG RUN

Our business environment changes rapidly and needs long term 
investment. We will not hesitate to place major bets on promising new 
opportunities.

We will not shy away from high-risk, high-reward projects because of 
short term earnings pressure. Some of our past bets have gone 
extraordinarily well, and others have not. Because we recognize the 
pursuit of such projects as the key to our long term success, we will 
continue to seek them out. For example, we would fund projects that 
have a 10% chance of earning a billion dollars over the long term. Do 
not be surprised if we place smaller bets in areas that seem very 
speculative or even strange. As the ratio of reward to risk increases, 
we will accept projects further outside our normal areas, especially 
when the initial investment is small.

We encourage our employees, in addition to their regular projects, to 
spend 20% of their time working on what they think will most benefit 
Google. This empowers them to be more creative and innovative. Many of 
our significant advances have happened in this manner. For example, 
AdSense for content and Google News were both prototyped in “20% time.” 
Most risky projects fizzle, often teaching us something. Others succeed 
and become attractive businesses.

We may have quarter-to-quarter volatility as we realize losses on some 
new projects and gains on others. If we accept this, we can all 
maximize value in the long term. Even though we are excited about risky 
projects, we expect to devote the vast majority of our resources to our 
main businesses, especially since most people naturally gravitate 
toward incremental improvements.

EXECUTIVE ROLES

We run Google as a triumvirate. Sergey and I have worked closely 
together for the last eight years, five at Google. Eric, our CEO, 
joined Google three years ago. The three of us run the company 
collaboratively with Sergey and me as Presidents. The structure is 
unconventional, but we have worked successfully in this way.

To facilitate timely decisions, Eric, Sergey and I meet daily to update 
each other on the business and to focus our collaborative thinking on 
the most important and immediate issues. Decisions are often made by 
one of us, with the others being briefed later. This works because we 
have tremendous trust and respect for each other and we generally think 
alike. Because of our intense long term working relationship, we can 
often predict differences of opinion among the three of us. We know 
that when we disagree, the correct decision is far from obvious. For 
important decisions, we discuss the issue with the larger team. Eric, 
Sergey and I run the company without any significant internal conflict, 
but with healthy debate. As different topics come up, we often delegate 
decision-making responsibility to one of us.

We hired Eric as a more experienced complement to Sergey and me to help 
us run the business. Eric was CTO of Sun Microsystems. He was also CEO 
of Novell and has a Ph.D. in computer science, a very unusual and 
important combination for Google given our scientific and technical 
culture. This partnership among the three of us has worked very well 
and we expect it to continue. The shared judgments and extra energy 
available from all three of us has significantly benefited Google.

Eric has the legal responsibilities of the CEO and focuses on 
management of our vice presidents and the sales organization. Sergey 
focuses on engineering and business deals. I focus on engineering and 
product management. All three of us devote considerable time to overall 
management of the company and other fluctuating needs. We are extremely 
fortunate to have talented management that has grown the company to 
where it is today—they operate the company and deserve the credit.

CORPORATE STRUCTURE

We are creating a corporate structure that is designed for stability 
over long time horizons. By investing in Google, you are placing an 
unusual long-term bet on the team, especially Sergey and me, and on our 
innovative approach.

We want Google to become an important and significant institution. That 
takes time, stability and independence. We bridge the media and 
technology industries, both of which have experienced considerable 
consolidation and attempted hostile takeovers.

In the transition to public ownership, we have set up a corporate 
structure that will make it harder for outside parties to take over or 
influence Google. This structure will also make it easier for our 
management team to follow the long term, innovative approach emphasized 
earlier. This structure, called a dual class voting structure, is 
described elsewhere in this prospectus.

The main effect of this structure is likely to leave our team, 
especially Sergey and me, with significant control over the company’s 
decisions and fate, as Google shares change hands. New investors will 
fully share in Google’s long term growth but will have less influence 
over its strategic decisions than they would at most public companies.

While this structure is unusual for technology companies, it is common 
in the media business and has had a profound importance there. The New 
York Times Company, the Washington Post Company and Dow Jones, the 
publisher of The Wall Street Journal, all have similar dual class 
ownership structures. Media observers frequently point out that dual 
class ownership has allowed these companies to concentrate on their 
core, long-term interest in serious news coverage, despite fluctuations 
in quarterly results. The Berkshire Hathaway company has applied the 
same structure, with similar beneficial effects. From the point of view 
of long-term success in advancing a company’s core values, the 
structure has clearly been an advantage.

Academic studies have shown that from a purely economic point of view, 
dual class structures have not harmed the share price of companies. The 
shares of each of our classes have identical economic rights and differ 
only as to voting rights.

Google has prospered as a private company. As a public company, we 
believe a dual class voting structure will enable us to retain many of 
the positive aspects of being private. We understand some investors do 
not favor dual class structures. We have considered this point of view 
carefully, and we have not made our decision lightly. We are convinced 
that everyone associated with Google—including new investors—will 
benefit from this structure.

To help us govern, we have recently expanded our Board of Directors to 
include three additional members. John Hennessy is the President of 
Stanford and has a Doctoral degree in computer science. Art Levinson is 
CEO of Genentech and has a Ph.D. in biochemistry. Paul Otellini is 
President and COO of Intel. We could not be more excited about the 
caliber and experience of these directors.

We have a world class management team impassioned by Google’s mission 
and responsible for Google’s success. We believe the stability afforded 
by the dual-class structure will enable us to retain our unique culture 
and continue to attract and retain talented people who are Google’s 
life blood. Our colleagues will be able to trust that they themselves 
and their labors of hard work, love and creativity will be well cared 
for by a company focused on stability and the long term.

As an investor, you are placing a potentially risky long term bet on 
the team, especially Sergey and me. The two of us, Eric and the rest of 
the management team recognize that our individual and collective 
interests are deeply aligned with those of the new investors who choose 
to support Google. Sergey and I are committed to Google for the long 
term. The broader Google team has also demonstrated an extraordinary 
commitment to our long term success. With continued hard work and good 
fortune, this commitment will last and flourish.

When Sergey and I founded Google, we hoped, but did not expect, it 
would reach its current size and influence. Our intense and enduring 
interest was to objectively help people find information efficiently. 
We also believed that searching and organizing all the world’s 
information was an unusually important task that should be carried out 
by a company that is trustworthy and interested in the public good. We 
believe a well functioning society should have abundant, free and 
unbiased access to high quality information. Google therefore has a 
responsibility to the world. The dual-class structure helps ensure that 
this responsibility is met. We believe that fulfilling this 
responsibility will deliver increased value to our shareholders.

BECOMING A PUBLIC COMPANY

Google should go public soon.

We assumed when founding Google that if things went well, we would 
likely go public some day. But we were always open to staying private, 
and a number of developments reduced the pressure to change. We soon 
were generating cash, removing one important reason why many companies 
go public. Requirements for public companies became more significant in 
the wake of recent corporate scandals and the resulting passage of the 
Sarbanes-Oxley Act. We made business progress we were happy with. Our 
investors were patient and willing to stay with Google. We have been 
able to meet our business needs with our current level of cash.

A number of factors weighed on the other side of the debate. Our growth 
has reduced some of the advantages of private ownership. By law, 
certain private companies must report as if they were public companies. 
The deadline imposed by this requirement accelerated our decision. As a 
smaller private company, Google kept business information closely held, 
and we believe this helped us against competitors. But, as we grow 
larger, information becomes more widely known. As a public company, we 
will of course provide you with all information required by law, and we 
will also do our best to explain our actions. But we will not 
unnecessarily disclose all of our strengths, strategies and intentions. 
We have transferred significant ownership of Google to employees in 
return for their efforts in building the business. And, we benefited 
greatly by selling $26 million of stock to our early investors before 
we were profitable. Thus, employee and investor liquidity were 
significant factors.

We have demonstrated a proven business model and have designed a 
corporate structure that will make it easier to become a public 
company. A large, diverse, enthusiastic shareholder base will 
strengthen the company and benefit from our continued success. A larger 
cash balance will provide Google with flexibility and protection 
against adversity. All in all, going public now is the right decision.

IPO PRICING AND ALLOCATION

Informed investors willing to pay the IPO price should be able to buy 
as many shares as they want, within reason, in the IPO, as on the stock 
market.

It is important to us to have a fair process for our IPO that is 
inclusive of both small and large investors. It is also crucial that we 
achieve a good outcome for Google and its current shareholders. This 
has led us to pursue

an auction-based IPO for our entire offering. Our goal is to have a 
share price that reflects a fair market valuation of Google and that 
moves rationally based on changes in our business and the stock market. 
(The auction process is discussed in more detail elsewhere in this 
prospectus.)

Many companies have suffered from unreasonable speculation, small 
initial share float, and boom-bust cycles that hurt them and their 
investors in the long run. We believe that an auction-based IPO will 
minimize these problems.

An auction is an unusual process for an IPO in the United States. Our 
experience with auction-based advertising systems has been surprisingly 
helpful in the auction design process for the IPO. As in the stock 
market, if people try to buy more stock than is available, the price 
will go up. And of course, the price will go down if there aren’t 
enough buyers. This is a simplification, but it captures the basic 
issues. Our goal is to have an efficient market price—a rational price 
set by informed buyers and sellers—for our shares at the IPO and 
afterward. Our goal is to achieve a relatively stable price in the days 
following the IPO and that buyers and sellers receive a fair price at 
the IPO.

We are working to create a sufficient supply of shares to meet investor 
demand at IPO time and after. We are encouraging current shareholders 
to consider selling some of their shares as part of the offering. These 
shares will supplement the shares the company sells to provide more 
supply for investors and hopefully provide a more stable fair price. 
Sergey and I, among others, are currently planning to sell a fraction 
of our shares in the IPO. The more shares current shareholders sell, 
the more likely it is that they believe the price is not unfairly low. 
The supply of shares available will likely have an effect on the 
clearing price of the auction. Since the number of shares being sold is 
likely to be larger at a high price and smaller at a lower price, 
investors will likely want to consider the scope of current shareholder 
participation in the IPO. We may communicate from time to time that we 
would be sellers rather than buyers.

We would like you to invest for the long term, and to do so only at or 
below what you determine to be a fair price. We encourage investors not 
to invest in Google at IPO or for some time after, if they believe the 
price is not sustainable over the long term.

We intend to take steps to help ensure shareholders are well informed. 
We encourage you to read this prospectus. We think that short term 
speculation without paying attention to price is likely to lose you 
money, especially with our auction structure.

GOOGLERS

Our employees, who have named themselves Googlers, are everything. 
Google is organized around the ability to attract and leverage the 
talent of exceptional technologists and business people. We have been 
lucky to recruit many creative, principled and hard working stars. We 
hope to recruit many more in the future. We will reward and treat them 
well.

We provide many unusual benefits for our employees, including meals 
free of charge, doctors and washing machines. We are careful to 
consider the long term advantages to the company of these benefits. 
Expect us to add benefits rather than pare them down over time. We 
believe it is easy to be penny wise and pound foolish with respect to 
benefits that can save employees considerable time and improve their 
health and productivity.

The significant employee ownership of Google has made us what we are 
today. Because of our employee talent, Google is doing exciting work in 
nearly every area of computer science. We are in a very competitive 
industry where the quality of our product is paramount. Talented people 
are attracted to Google because we empower them to change the world; 
Google has large computational resources and distribution that enables 
individuals to make a difference. Our main benefit is a workplace with 
important projects, where employees can contribute and grow. We are 
focused on providing an environment where talented, hard working people 
are rewarded for their contributions to Google and for making the world 
a better place.

DON’T BE EVIL

Don’t be evil. We believe strongly that in the long term, we will be 
better served—as shareholders and in all other ways—by a company that 
does good things for the world even if we forgo some short term gains. 
This is an important aspect of our culture and is broadly shared within 
the company.

Google users trust our systems to help them with important decisions: 
medical, financial and many others. Our search results are the best we 
know how to produce. They are unbiased and objective, and we do not 
accept payment for them or for inclusion or more frequent updating. We 
also display advertising, which we work hard to make relevant, and we 
label it clearly. This is similar to a newspaper, where the 
advertisements are clear and the articles are not influenced by the 
advertisers’ payments. We believe it is important for everyone to have 
access to the best information and research, not only to the 
information people pay for you to see.

MAKING THE WORLD A BETTER PLACE

We aspire to make Google an institution that makes the world a better 
place. With our products, Google connects people and information all 
around the world for free. We are adding other powerful services such 
as Gmail that provides an efficient one gigabyte Gmail account for 
free. By releasing services for free, we hope to help bridge the 
digital divide. AdWords connects users and advertisers efficiently, 
helping both. AdSense helps fund a huge variety of online web sites and 
enables authors who could not otherwise publish. Last year we created 
Google Grants—a growing program in which hundreds of non-profits 
addressing issues, including the environment, poverty and human rights, 
receive free advertising. And now, we are in the process of 
establishing the Google Foundation. We intend to contribute significant 
resources to the foundation, including employee time and approximately 
1% of Google’s equity and profits in some form. We hope someday this 
institution may eclipse Google itself in terms of overall world impact 
by ambitiously applying innovation and significant resources to the 
largest of the world’s problems.

SUMMARY AND CONCLUSION

Google is not a conventional company. Eric, Sergey and I intend to 
operate Google differently, applying the values it has developed as a 
private company to its future as a public company. Our mission and 
business description are available in the rest of the prospectus; we 
encourage you to carefully read this information. We will optimize for 
the long term rather than trying to produce smooth earnings for each 
quarter. We will support selected high-risk, high-reward projects and 
manage our portfolio of projects. We will run the company 
collaboratively with Eric, our CEO, as a team of three. We are 
conscious of our duty as fiduciaries for our shareholders, and we will 
fulfill those responsibilities. We will continue to attract creative, 
committed new employees, and we will welcome support from new 
shareholders. We will live up to our “don’t be evil” principle by 
keeping user trust and not accepting payment for search results. We 
have a dual-class structure that is biased toward stability and 
independence and that requires investors to bet on the team, especially 
Sergey and me.

In this letter we have explained our thinking on why Google is better 
off going public. We have talked about our IPO auction method and our 
desire for stability and access for all investors. We have discussed 
our goal to have investors who determine a rational price and invest 
for the long term only if they can buy at that price. Finally, we have 
discussed our desire to create an ideal working environment that will 
ultimately drive the success of Google by retaining and attracting 
talented Googlers.

We have tried hard to anticipate your questions. It will be difficult 
for us to respond to them given legal constraints during our offering 
process. We look forward to a long and hopefully prosperous 
relationship with you, our new investors. We wrote this letter to help 
you understand our company.

We have a strong commitment to our users worldwide, their communities, 
the web sites in our network, our advertisers, our investors, and of 
course our employees. Sergey and I, and the team will do our best to 
make Google a long term success and the world a better place. . We made 
business progress we were happy with. Our investors were patient and 
willing to stay with Google. We have been able to meet our business 
needs with our current level of cash.

A number of factors weighed on the other side of the debate. Our growth 
has reduced some of the advantages of private ownership. By law, 
certain private companies must report as if they were public companies. 
The deadline imposed by this requirement accelerated our decision. As a 
smaller private company, Google kept business information closely held, 
and we believe this helped us against competitors. But, as we grow 
larger, information becomes more widely known. As a public company, we 
will of course provide you with all information required by law, and we 
will also do our best to explain our actions. But we will not 
unnecessarily disclose all of our strengths, strategies and intentions. 
We have transferred significant ownership of Google to employees in 
return for their efforts in building the business. And, we benefited 
greatly by selling $26 million of stock to our early investors before 
we were profitable. Thus, employee and investor liquidity were 
significant factors.

We have demonstrated a proven business model and have designed a 
corporate structure that will make it easier to become a public 
company. A large, diverse, enthusiastic shareholder base will 
strengthen the company and benefit from our continued success. A larger 
cash balance will provide Google with flexibility and protection 
against adversity. All in all, going public now is the right decision.

Larry Page
Sergey Brin



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