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SEC rules drag reluctant Google to market

'And these little piggies forgot about their disclosure requirements'

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In an irony that won't escape long-time Google watchers, an overlooked regulation will oblige the company to disclose more information than it wanted to. Google has long fought shy of an IPO offering, as remaining private allows the company to "avoid public scrutiny", in the words of co-founder Sergey Brin. Comparably sized companies have happily stayed private and out of the limelight, such as one of the world's largest, the SAS Institute, which turns over a $1 billion revenue a year.

However, section 12(g) of the 1934 Securities and Exchange Act, brought about to temper the excesses of 1920s speculation mania by introducing greater transparency, obliges even private companies of a certain size - 500 shareholders and $10 million in revenue - to make more comprehensive disclosures.

"The filing with the Securities and Exchange Commission, would reveal so much about the secretive firm that many experts believe Google might take the next logical step and file for an initial stock offering," the San Jose Mercury suggested this week, and wire services reaffirm that this requirement has tipped Google inexorably towards IPO.

Although press comment has focused on the similarities between the Google IPO mania and the excitement that followed Netscape's flotation in 1995 - indeed, there are many here who hope it results in the same speculative bubble - the parallels aren't exact. When Jim Clark took Netscape public, he was making a gamble. Netscape was a few months old, had little discernable income, little of what marketers call "brand equity", and certainly no secret sauce. By floating the company, Clark was propelling it into the big league. It was a sleight of hand, that could only last until the money ran out, or Microsoft woke up. Google doesn't have a secret sauce either (as Daniel Brandt notes in his acidic, but accurate, summary here). On the other hand it is a world-known name, and more importantly, a profitable business as an advertising broker.

Brin is correct: Google simply doesn't need to float. His official explanation is that a public Google would be distracted by the quarterly reporting requirements, and so we must take him at his word. But Google sounds pretty distracted already: it neglected to do due diligence on its new Gmail service (a small British company owns the trademark in 80 countries and there are already two Gmails out there) and Bill Joy turned down a company in such chaos that "no one can figure out who's in charge or even what Google's licensing policy is," Forbes reported last year.

However the manner of its path to IPO will set the mood music for the company's foreseeable future. Even if it does its job well, it isn't likely to escape the attention of regulators. In fact, the better it does, the more attention it will attract. This week saw the first introduction of a bill to require Google to provide an opt-out for users of its Gmail service. Hard-headed regulators simply don't go gaga at the sight of men and machines as starry-eyed techno-utopians. Marc Andressen said some pretty reckless things a decade ago, but he never dreamed of planting his company's chip in your head. ®

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