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

Gordon Mohr (personal) gojomo at usa.net
Thu Apr 29 20:32:45 PDT 2004


The forwarded version of the text, as it also appeared in the NYTimes, includes
a transcription problem at the bottom, where some earlier text was repeated.
Also, the letter's title included a footnote. I've removed the repeat text and
added back the footnote below, based on the version in the S-1 Registration
statement.

- Gordon

> April 29, 2004
> 
> “AN OWNER’S MANUAL” FOR GOOGLE’S SHAREHOLDERS [1]
> 
> 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. 

[[[ NYTIMES ERRONEOUS TEXT REPEAT ELIDED ]]]

> Larry Page
> Sergey Brin

 > =======================================================================
 > [1] Much of this was inspired by Warren Buffett's essays in his annual
 > reports and his "An Owner's Manual" to Berkshire Hathaway shareholders.


 >


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