With Google all set to start their IPO this Wednesday, many analysts are busy scratching their heads trying to work out whether the numbers add up.
One little detail that is exercising their minds is the recent fate of the once acclaimed Lycos. Terra Lycos announced this week that it will sell U.S.-based Web portal Lycos, which it bought just four years ago in a deal variously valued at between 7 billion and 12 billion dollars, to South Korea’s largest Internet company – Daum – for just $105 million.
Did Daum get a good deal, or were Terra Lycos laughing all the way to the bank? Hard to say, and that is just the problem. Internet search companies are hard to value, and that is what is making everyone nervous with the forthcoming Google offer, which it has been suggested may raise anything up to 30 billion dollars.
The problem here is twofold: what is the business model, and where is the protection against competition? In the first case the evolution seems to be towards an increasing reliance on advertising revenue. This once worked well for an earlier platform – TV – but now seems to be giving problems even there. Can it really be that the new generation media will always have to fall back on old generation methods to survive?
Secondly, from Google’s point of view, where is the protection? As a non-specialist I have no idea just how difficult it will be for anyone to oust Google from its poll position. Perhaps I should rephrase that: I have no idea how long it will be before someone does. For such is the dynamic behind these new economy information companies that the only thing which is really gauranteed is that someday someone will. And when you come to try to give an estimate of the real value of a company, then one of the things which ought to be important would be how long it might be in business.
Some commentators are drawing attention to the fact that Microsoft are preparing an entry into the search business. How successful this will be only time will show. But clearly anyone with a brand, and a related business which offers the necessary technical expertise and resources might well consider themselves candidates to join the race.
And what about the next generation engines? Who is to say that the first move won’t come from another couple of college kids just playing around.
All of this would give me plenty of food for thought if I were contemplating (which I’m not) buying shares in Google. Doubtless Telefonica’s Spanish fixed line clients (who will probably be paying off the bill for the last broken dream for some years to come) will have their minds on other matters.
One difference, of course, is, who in the TECH world, ever though Lycos was worth anything? They may have done a great job snowing wall street with loony talk of how portals were so important, but they never impressed a single engineer.
Now this is not to say that good technology turns into money. (And, it should also be pointed out that Google has some pretty crummy technology. Google local is lousy lousy lousy compared to yp.yahoo.com. Froogle often sucks. Image search seems to do a pretty pisspoor job of turning up only a few images when you have to believe there should be thousands more out on the web.)
The point is simply that there are differences between the companies.
Google has some really strong underlying technology that could be adopted to all sorts of other problems (eg the infamous “grid computing” — how about they hire out their excess CPU capacity to drug companies and simply get paid each month by how much computation they squeeze out during quiet periods when not so many people are searching?)
As I said, the fact that some of their attempts to diversify so far have been pretty lame is worrying. But then, how much of that is because these attempts were basically employee toy projects without any real company backing?
All in all, I think one really needs to have a better idea of what the company dynamic is, in terms of whether they are a one trick pony or full of ideas, before one can fairly judge.