Google’s critics are left searching for humble pie

The success of Google’s flotation doesn’t signal another dot-com boom, it merely demonstrates that the company is very well run.

I can’t believe there’s anyone with computer access who hasn’t typed their own name into an internet search engine. It’s not particularly vain – more of an identity checkpoint. Type in “George Pitcher” on Google and 7,370 entries come up. I’m professionally (and pleasingly) in at number three, which means someone at the firm has been working on those clever rank-ordering softwares that move companies up the lists. There’s also George Pitcher’s 19th-century Family Bible and The Dogs Who Came to Stay by George Pitcher, which isn’t the first volume of my autobiography, listing my early romantic conquests. My own book doesn’t appear until page two, alongside an Ebay ad for “a wonderful George Jones mid-Victorian pitcher!” Still, by that stage I’m finding more reviews than the other Pitcher’s Dogs.

Meanwhile, type in “Google” to Google and 122 million entries come up, which is arguably rather more vain. But cursory inspection shows that Google hasn’t larded the search results with self-serving corporate information, but rather given priority access to its services, such as Google News (a world news service, not a staff newsletter), Google Weblog and Google Watch. Admittedly, there’s an item listed called “Is Google God?”, which may make a case for the company’s self-worship, but there’s no immediate corporate page, listing mission statements, who-we-are site maps and financial statements, of the kind favoured by most large, publicly listed companies.

This apparent reticence is pleasantly surprising – giving customer provision precedence over investor relations – when you consider that Google floated in August in a novel, online tendering process. But it only goes to serve a point I have made consistently since the rise and fall (and re-rise) of the dot-com sector, namely that dot-com enterprises which succeed are almost invariably in the connectivity business, such as Google and Friends Reunited. Those who saw it simply as a new route to market (and a rip-off one at that) have been less prosperous, such as Boo.com and a raft of other retail ventures that were founded on the premise that consumers would stop going to shops (and were fundamentally stupid).

I’m pleased that Google’s initial public offering (IPO) has been such a roaring success – and only partly because I said it would be. It proves concurrently that well-run, internet enterprises are full of value and potential and that all those wiseacres from traditional telecoms markets and the spoilt and lazy traditional flotation specialists who said that the Google IPO would fall on its face were spectacularly wrong. Google’s shares began trading in the summer at $85 (&£47) and are now worth around $170 (&£95), valuing the whole company at a staggering $46bn (&£25bn). You can find all this info on the Web, but Google would rather interest you in its services. There’s a message there somewhere.

Anyway, City talk has now turned to the possibility of a new dot-com bubble developing, the implication being that Google is symptomatic of a new internet madness. This is partly directed by sound science and partly by that old characteristic of traditional technologies: envy. The young founders of Google, Larry Page and Sergey Brin, are each taking profits on their personal shareholdings of some &£650m each, while retaining stakes worth close to &£3bn each.

I’m indebted to my old friend, the thoughtful commentator John Plender, for pointing out that at the height of the high-tech bubble in 2000, those stocks that were collectively known as the New Economy were together losing some $8bn (&£4.3bn), within total US corporate profits of $818bn (&£454bn). In the three years subsequently, they lost $135.8bn (&£75.5bn) and, between 1998 and 2000, they only made profits of $32.4bn (&£18bn). The sound-science argument would seem to suggest that here we go again – lots of promise, very little delivery of profits and a few highly enriched individuals along the way.

Well, maybe. I am also directed to the website of the National Bureau of Economic Research (www.nber.org/ papers/w10433), which runs a paper by William Nordhaus about the importance of what are called Schumpeterian profits in the US economy. These are the important profits that arise when companies are able to exploit the returns from innovative activity. He concludes that only a tiny fraction of post-war returns from technological advances were captured by producers, indicating that most of the benefits of technological change were passed on to consumers.

Well, again, maybe. But I’ll stick to bullishness for Google on the basis that it’s about connectivity, information rather than retail, is high-volume and low-margin for its advertisers and is efficient. It’s also a successful flotation and a rising share-price, which is unusual enough these days. So let’s not begrudge Page and Brin their billions – and wish their shareholders well.

George Pitcher is a partner at communications management consultancy Luther Pendragon

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