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April 2004

Google's Manual for Shareholders

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.

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.

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.

I have been reading Memex 1.1 on Google's decision to float. In particular, Memex examines Google's 'LETTER FROM THE FOUNDERS: "AN OWNER'S MANUAL" FOR GOOGLE'S SHAREHOLDERS' (the introduction to which is quoted above):

I have a lovely image of the dour officials of the Securities and Exchange Commission having to lie down in darkened rooms at this point. I've never seen a prospectus like this — nor, for that matter, has Wall Street. Instead of the constipated legalese warning investors to expect nothing, there is plain English promising risks and adventure and an exhilarating ride. Instead of promises of penny-pinching, cost-squeezing management, there are undertakings to expand the range of employee benefits. Instead of the usual, corrupt IPO 'placing' of shares with investment bankers and their plutocratic clients, there is to be a public auction. There is an undertaking to set up a charitable foundation. And a commitment to values which are elsewhere honoured more in the breach than in the observance.
"We believe strongly", Brin and Page write, "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.... 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."

Like I said, was there ever anything like this on Wall Street before?

And this is John Battelle's take:

The letter states, among other things, that 1. We don't need to do this for the money; 2. We have no plans to run our business to satisfy Wall Street's need for smooth earnings predictability; 3. We plan to give no earnings guidance, not at least as it's understood on Wall St.; 4. Don't ask us to do so, we'll simply decline the request; 5. We'll do odd things that you won' t understand; 6. We will make big bets on things that may not work out; 7. We run the company as a triumvirate, so there will not be clear leadership from one person like most other companies; 8. We bridge the media and tech industries (interesting), which are in flux, so we've chosen a two-class stock structure similar to the NYT, WashPost, and WSJ that helps us avoid being taken over by those forces; 9. We plan using an auction model, as it feels fairer and we understand auctions from AdWords; 10. Don't invest in us if this scares you at all, or the price feels too high; 11. Don't even think about asking us to cut expenses with regard to our employees; 12. We believe in the idea of Don't Be Evil; 13. It's evil to pay for placement or inclusion (a swipe at Yahoo); 14. We hope to bridge the digital divide through Gmail type free services and a foundation with at least 1% of profits and equity to help make the world a better place; 17. Betting on Google is a bet on Sergey and Larry (this was said multiple times, making me wonder if there wasn't some odd future blame being assigned here by the VCs or bankers); 18. This letter is our way of answering the questions we can't answer in the coming months due to the IPO quiet period.

While my summary of the letter may sound negative, it's my honest and initial response: to me, the letter comes off pretty strong, and likely will anger many on Wall Street. But I have to commend the founders for sticking to their beliefs, and using the IPO as something of a megaphone/soapbox. It is brave, unique, and rather commendable to very publicly state that the founders are controlling the company, and the founders will decide what is best for Google, not Wall Street. They've set themselves a very high long-term bar, claiming they will best the system, in essence. I think it will be very interesting to see how Wall Street responds. There is a chance, in the end, that the Street will feel slighted, and turn its back on the company.

And there's this from venturepreneur:

Google's future: The most surprising thing in this prospectus -- which is full of surprises -- is that the company does not articulate a growth story in the Prospectus Summary. If you are concerned about Google's future, as every investor should be, you want to know what's next. That information is simply absent. Their business model is simply stated: "We generate revenue by delivering relevant, cost-effective online advertising." Later in the prospectus: "Advertising revenues made up 77%, 92%, 95% and 96% of our net revenues in 2001, 2002, 2003 and in the three months ended March 31, 2004." Internet advertising is the only source of revenue! Unbelievable. What year is this?

If you dig into the prospectus a ways, as I have done, you will find these lame attempts at telling a growth story:

* "Our business has grown rapidly since inception, and we anticipate that our business will continue to grow." (p. 38) The basis for this expectation? Not explained. Indeed, the text that follows this assertion emphasizes an ominous point: operating margins are declining.

* "We have experienced and expect to continue to experience substantial growth in our operations as we seek to expand our user, advertiser and Google Network members bases and continue to expand our presence in international markets." Again, the basis for this expectation is not explained. In a world where search is becoming more competitive, Google grows only if the size of the pie grows. While it seems reasonable to assume that the number of internet users will increase over time, we have no indication that the increased number of users will result in more profits for the company ... particularly the kind of profits that would be necessary to sustain a valuation of $25 billion.

* In their discussion of competitors, Microsoft and Yahoo are named. "Most of the products and services we offer to users are free, so we do not compete on price. Instead, we compete in this area on the basis of the relevance and usefulness of our search results and the features, availability and ease of use of our products and services." And as for the future? "We believe that we compete favorably on the factors described above. However, our industry is evolving rapidly and is becoming increasingly competitive. Larger, more established companies than us are increasingly focusing on search businesses that directly compete with us."

Bottom line: The prospectus is worse than I imagined it could be. I assumed Google would have a difficult time telling a growth story, but I thought that they would give it the old college try. Instead, their growth story is nothing more than a celebration of past accomplishments. "Don't you just love our search technology?!"

Then there's this from Mitch Kapor:

I applaud Google founders Larry Page and Sergei Brin for their principles and their courage in standing up to Wall St. in setting their IPO terms. There will be no feeding of IPO shares to "special friends" who flip them for an instant profit. There will be no games played with analysts in providing guidance about quarterly earnings.

It's too bad it took nothing less than the leverage of these presumptive billionaires to make this happen. This is the only way Wall St. would listen.
I truly hope they are able to continue to manage the company for innovation in the face of inevitably mounting financial and competitive pressures.

What I hope even more is that their bold moves will stimulate a whole series of debates about the ways in which venture capital and Wall St. do and don't work to promote the development of technology, like Google's, which genuinely serves people's needs.

Finally, Memex 1.1 on the fuss Wall Street and London are making about the "affrontery" shown to investors in Google's Manual:

What makes this cant so comical, of course, is that it comes from a segment of society which (a) encouraged mugs to blow trillions of dollars during the last technology bubble, (b) took billions in fees from the IPOs of fatuous dot-coms, (c) employed 'analysts' like Merill Lynch's Henry Blodget who hyped technology shares long after it was clear that they were doomed and (d) overlooked (and in some cases cheered on) Enron-style corruption and fraud for decades.

Thom Gunn, 1929 – 2004

© Ander Gunn 1992 (poets.org)

Thom Gunn, a transplanted British poet identified with the San Francisco scene and the California liberated style, died on Sunday night at his home in San Francisco, his adopted hometown. He was 74. His death was announced by his companion of 52 years, Mike Kitay.

Acclaimed as one of the most promising young poets of postwar Britain, Mr. Gunn found his own voice after he migrated to California in the 1950's and established himself in San Francisco, his home for the rest of his life. There, he wedded traditional form to unorthodox themes like LSD, panhandling and homosexuality. He experimented with free verse and syllabic stanzas. In doing so he evolved from British tradition and European existentialism to embrace the relaxed ways of the California counterculture.

Born and educated in England, he was grouped as a young man at Cambridge in the 1950's with a generation of writers, notably Philip Larkin, known as the Movement. Their verse was celebrated for its dry, skeptical rejection of what they saw as rhymed grandiosity. He later studied at Stanford with the poetic rationalist Yvor Winters. By the time his best-known early collection, "My Sad Captains", appeared in 1961, Mr. Gunn had settled in America.

His work was honored on both sides of the Atlantic. He won a Guggenheim fellowship in 1971 and was chosen as a MacArthur fellow in 1993. The Man With Night Sweats (Farrar, Straus & Giroux; 1992) was his characteristically unsentimental vision of the AIDS epidemic in San Francisco, and a stark tribute to the friends he lost to it. NYT

Other obituaries and articles: San Francisco Chronicle, The Daily Telegraph, The Times, The Independent, The Guardian.


John Lennon's jukebox: "the original iPod"

What might John Lennon have had on his iPod?

(A) 15 kg portable jukebox, owned by Lennon around 40 years ago, was bought by the late Bristol music promoter John Midwinter for just £2,500 at a Christie's sale of Beatles memorabilia in 1989. He then spent years restoring it to working order and researching its 41 discs. Listed in Lennon's handwriting, they are effectively the Desert Island Discs which helped shape his musical genius.

Among the collection of rock and roll, rhythm and blues and soul, Midwinter traced an intriguing influence on the Beatles' output. Blues performer Bobby Parker's guitar lick was 'borrowed' by the Beatles for 'I Feel Fine'. Delbert McClinton's harmonica inspired Lennon's own on 'Love Me Do'. And the high-pitched scream on 'Twist and Shout' and other tracks was copied from the Isley Brothers. A team from The South Bank Show took the jukebox, which they dubbed 'the original iPod', across America to track down Lennon's musical heroes.

... Artists featured on the jukebox include The Animals, Chuck Berry, Bob Dylan, Buddy Holly, Little Richard, Smokey Robinson and Gene Vincent. There are no Beatles records and only one sung by a woman, Fontella Bass's 'Rescue Me'. The Observer


Laser-aided vision

A system that projects light beams directly into the eye could change the way we see the world. US firm Microvision has developed a system that projects lasers onto the retina, allowing users to view images on top of their normal field of vision. It could allow surgeons to get a bird's eye view of the innards of a patient, offer military units in the field a view of the entire battlefield and provide mechanics with a simulation of the inside of a car's engine.

The system uses tiny lasers, which scan their light onto the retina to produce the entire range of human vision, reported the journal of the Institute of the Electrical and Electronics Engineers, IEEE Spectrum. BBC News


A blog with a difference

At the end of February 2004, Ben Saunders set out to ski solo more than 1,200 miles across the Arctic from Siberia to Canada via the Geographic North Pole.

Traversing the Arctic alone without kites or dogs remains one of the very few genuine world firsts that have yet to be achieved — in setting out on this, Ben aims to 'reset the polar standard'.

This is his weblog, updated regularly throughout his expedition.

Everyone's got a North Pole. Achievement isn't about sitting around a house in Big Brother and getting a million quid. By doing this I hope I am saying to people of my generation that they can do anything. Hopefully it's not just some bloke with a frozen beard skiing somewhere again ...” The Observer

Link via Vlog 2.1


eBooks

Sony's LIBRIé is laucnhed on Saturday in Japan. The Guardian reports:

Would you read a novel on this six-inch screen? ... The quality of the display will come as quite a shock to any seasoned user of mobile devices; it looks more like paper than the computer screen it is. The closest comparison is to think of old-fashioned ink on pulp you're likely holding now, unless you're reading this online, in which case the Librie looks far better. ... In fact, as it's a reflective screen, it looks the same whether you read it indoors or out. ... With a sufficiently large Memory Stick for storage, 500 books can be indexed at any one time, which might just cover a fortnight at the beach. Controls are straightforward, an important factor that should suit the non-technical audience such a product has to win over, with the main ports of call being the buttons to page forward and back and a jog dial for scrolling through menus. ... The result is a 6in screen with a resolution of 600x800 dots at 170dpi, considerably sharper than the 70-90dpi of a regular computer display. This allows for increasing the text size up to 200% with no degradation. ...

via Rebecca's Pocket


A History of Conflict: Israel and Palestine

From the BBC:

The struggle between the Israelis and the Palestinians is one of the most enduring and explosive of all the world's conflicts. It has its roots in the historic claim to the land which lies between the eastern shores of the Mediterranean Sea and the Jordan river.

For the Palestinians the last 100 years have brought colonisation, expulsion and military occupation, followed by a long and difficult search for self-determination and for coexistence with the nation they hold responsible for their suffering and loss. For the Jewish people of Israel, the return to the land of their forefathers after centuries of persecution around the world has not brought peace or security. They have faced many crises as their neighbours have sought to wipe their country off the map.

BBC News Online highlights some of the key dates of recent Middle East history and looks back at the origins and development of the Arab-Israeli conflict. ... Click on a year below to find out what happened.

Link via Rebecca's Pocket


IBM on the future of the media

Key posting by Jeff Jarvis, quoting Leonard Witt's excerpts from an IBM white paper, Media and Entertainment 2010:

An increasing segment of consumers will be able to compile, program, edit, create and share content; as a result, they will gain more control and become more immersed in media experiences.

The future will see more open, reciprocal relationships and more ways to interact and customize at every point of the media value loop – among brands, creators, suppliers, distributors, delivery systems, customers and “experiencers” of media content.

Consumers will be able to compile, edit, produce, create and broadcast complex content and manipulate huge files from the comfort of their homes and personal budgets. The battle for human attention will remain pitched: innovations will continue to cascade rapidly to market. The glut of choices, channels, brands, traditional media and archival content must now compete with customers’ and consumers’ new enthusiasms for interactive media, on demand scheduling and publishing, and steadily increasing thirst for the rich, interactive experiences digital technologies make possible.

The horizontal axis shows trends in the experience of media consumption, moving from the traditional media-directed system to the open, immersive environment of the future. Media companies must interact with the “hot” new combinations of technology, devices and behaviors that will be unpredictably driven by open markets and a determined sense of user entitlement.

Types of consumers, come 2010:

Media consumers, to varying degrees, will be increasingly involved in the creative process. By 2010, the impacts of new technologies will have sidelined predictable market assumptions, fueling the “I want what I want, when I want it” behavior ... Although traditional passive consumption will continue to represent a large market share, digital media’s capabilities will engender new forms of interaction, powerfully compelling media companies to become digitized and responsive, and enabling even traditional consumers to make content more individually meaningful:

Traditional passive consumers – will choose among media companies’ predictable mass-market offerings, but will use several platforms or flexible viewing schedules with affordable devices. Using digital content management and delivery systems, content providers may make it simple enough for traditionalists to choose different edits of the same content for children or adults.

Contributors – will experiment with more options and more innovative platforms, providing feedback passively through purchase choices and data collection, and actively through suggestions, opt-ins or invitations to participate online.

Producers – will program content and devices that they purchase from multiple sources, making uniquely personalized digital play lists or collections for their own tastes. These tech-savvy users will port content files among a variety of devices, and compile chunks of content from many sources into their own playback formats.

Authors – will utilize Web tools to tailor content to business or personal interests, seeking self-expression or control. Media companies will provide affordable advanced tools to this growing slice of active users, such as special blog (Web log) sites, multiplayer online games, user-group “theaters” or conference centers and downloadable production components – music, cinema and TV samples, streaming video or digital photo illustrations. Users who contribute or interact as producers of their own programming or authors of content will not cease to enjoy passive consumption; they will add new skills and
redefine the amount of time they spend enjoying media passively.


Bloggers and the news

I've mentioned Jeff Jarvis before (see here and here). The following links, comments and quotations are from Jeff Jarvis's postings today.

The Saudi blogger, Religious Policeman, says the (second) Saudi civil war has begun:
The first was when King AbdulAziz, back in the last century, unified Saudi Arabia (or stole it from the Hashemites, depending on your point of view. However the victors write the history). The second is starting now. Am I being over-dramatic? Some may think so. However I do not believe that I am. Saudi Arabia has always nurtured religious extremists thru its Wahabbi state religion, its educational system, and its introverted attitude to the outside world. The advent of oil provided the finance for these extremists to practice what they preached. At first they operated abroad, in Afghanistan, in Chechnya, in the Yemen. And we Saudis regarded them as brave adventurers, the late 20th century equivalent of volunteers in the Spanish Civil War.

Then came 9/11. It had become more serious. But Westerners were the target. And, at all levels, we never really condemned it. Indeed, many cheered.... Now, all of a sudden, they are attacking Saudis. OK, Saudis from the ruling tribes, part of the security forces. But we all look the same. And suddenly we are the targets. The terrorists are not going to leave us alone, because we're not part of the government apparatus. And now we are faced with the sudden realization that we should have done something about this a long time ago.

News from Iraq:

The head of CNN laments that the violence in Iraq means that reporters are not getting out to find out what is going on firsthand and that means we're not getting good reporting from Iraq:
I think news consumers are being shortchanged to a degree, not just on television but in print, because journalists are not able to do their jobs effectively, and certainly the depth and breadth of reporting that you saw even a month ago was far more vast than what news consumers get today.

As Jeff says, 'all the more reason for us — and for news organisations! — to watch what the Iraqi bloggers are saying and to hope that more start publishing. It's not their job to cover all the news. But they give us the news they know from their perspectives.' I have mentioned this before. Today, Jeff Jarvis also singles out the blogging of The Mesopotamian.