What IPOs tell us about Facebook and Google

Does corporate culture matter? How is corporate culture even revealed? Aren't all Silicon Valley companies virtually identical?

Well, it turns out that Silicon Valley companies are NOT all the same. And their different cultures shine through quite clearly at times. Their initial public offerings (IPOs) are some of those times. Consider this story from Umair Haque:
"A Tale of Two IPOs"
http://www.bubblegeneration.com/2011/01/tale-of-two-ipos.html

This article quite clearly demonstrates the difference between Google and Facebook. Once company cares about its users (or at least it did at the time of its IPO--whether it still does to the same degree is debatable). And the other, despite being all about "social" and "friends," does not.

"When Google IPO'd, it explicitly refused to play by Wall St's rules--instead, issuing equity in a relatively open Dutch auction."

"...According to its filing, Google seems willing, eager even, to start off life as a publicly traded company on the right foot, hoping to steer clear of some of the sweetheart dealmaking that characterized the last wave of go-go IPOs. Instead, Google plans an auction of its shares to raise up to $2.7 billion; a process open to all bidders."

"Today, we have Facebook--not challenging Wall St's rules, but, instead, endorsing and subscribing to them. Facebook's quasi-IPO is a deal with Goldman to build an SPV through which high-net-worth investors can essentially buy blocks of Facebook equity.

"The contrast couldn't be more striking. A closed SPV for a tiny number of clients, which skirts the SEC's rules on venture finance, is the antithesis of Google's open Dutch auction."

According to this article, Google believes in democracy and "a set of principles for creating enduring value." Facebook does not.

In the opinion of the author, "Companies that have philosophies are resilient--they're able to weather the fiercest of storms, because they focus on enduring value, not transient gains. What Facebook's Goldman deal might tell the astute observe of strategy is this. Facebook has no philosophy, no set of guiding principles that focus it on enduring value. Instead, it is focused--as it has been focused--on building an extractive ecosystem rife with subprime economics and tail risk, not creating value that matters, lasts, and grows."

To take this one step further, Google was so adamant about adhering to its principles that it cut Goldman Sachs out of its IPO. From Wired:
"Snubbed by Google, Goldman Sachs ‘Friends’ Facebook"
http://m.wired.com/epicenter/2011/01/snubbed-by-google-goldman-sachs-friends-facebook/all/1

"As Google prepared to go public in early 2004, its top executives sent a message to the Wall Street bankers salivating to get a piece of the $2.7 billion IPO: no backroom jockeying, no sweetheart deals. Goldman Sachs’ then-CEO Hank Paulsen promptly ignored the directive and reached out to powerful venture capitalist John Doerr of Kleiner Perkins, one of the earliest Google investors, hoping to get an inside track on the deal.

"Big mistake. When Google’s top executives found out that Paulsen was trying sneak behind their back and finagle Goldman’s way into the IPO, they went 'apeshit,' as Charlie Gasparino reported in the May 10, 2004, issue of Newsweek. Thanks to Paulsen’s blunder, Google immediately cut Goldman out of the IPO, costing the bank over $130 million in fees — fees that Goldman thought it was entitled to as the premier underwriter of hot tech issues to that point.

"This anecdote is instructive because it is just one of many examples of the contrast between how Google went public in 2004, and how Facebook is conducting itself now, ahead of a widely expected IPO in 2012. Facebook seems intent on not following Google’s path, and in fact, taking an almost-diametrical approach.

"Far from shunning sweetheart deals, Facebook has enthusiastically embraced them, as evidenced by the $1.5 billion private placement for the super-rich that the social networking website has granted to none other than Goldman Sachs."

"Google’s Dutch auction–style IPO was designed to put regular investors on the same footing as the richest bankers at the top Wall Street firms. It didn’t matter if you had $100 to invest or $1 million. All investors were treated equally."


In fact, some people seem to think that this is already the beginning of the end for Facebook. From CNN:
"Facebook hype will fade" by Douglas Rushkoff
http://www.cnn.com/2011/OPINION/01/07/rushkoff.facebook.myspace/

"But appearances can be deceiving. In fact, as I read the situation, we are witnessing the beginning of the end of Facebook. These aren't the symptoms of a company that is winning, but one that is cashing out."

"Likewise, Rupert Murdoch's 2005 purchase of MySpace for $580 million coincided pretty much exactly with the website's peak of popularity. People blamed corporate ownership for the social network's demise, but the cycle had already begun.

"Now, it's Facebook's turn. This week's news that Goldman Sachs has chosen to invest in Facebook while entreating others to do the same should inspire about as much confidence as their investment in mortgage securities did in 2008. For those who weren't watching, that's when Goldman got rich betting against the investments it was selling."

"Unlike a public offering of shares, this private offering to Goldman's clients doesn't obligate Facebook to come clean on its real profits. It doesn't have to submit to standard accounting practice, or indicate how well it's really doing or isn't doing. It gets to remain in the safe cloud of hype that protects all such ventures until they either make a real profit or die trying.

"The object of the game, for any one of these ultimately temporary social networks, is to create the illusion that it is different, permanent, invincible and too big to fail. And to be sure, Facebook has gone about as far as any of them has at creating that illusion.

"If you were there for Compuserve, AOL, Tripod, Friendster, Orkut, MySpace or LinkedIn, you might have believed the same thing about any one of those social networks. Remember when those CD Roms from AOL came in the mail almost every day? The company was considered ubiquitous, invincible. Former AOL CEO Steve Case was no less a genius than Mark Zuckerberg."

"Yet social media is itself as temporary as any social gathering, nightclub or party. It's the people that matter, not the venue. So when the trend leaders of one social niche or another decide the place everyone is socializing has lost its luster or, more important, its exclusivity, they move on to the next one, taking their followers with them."

"We will move on, just as we did from the chat rooms of AOL, without even looking back. When the place is as ethereal as a website, our allegiance is much more abstract than it is to a local pub or gym. We don't live there, we don't know the owner, and we are all the more ready to be incensed by the latest change to a privacy policy, or to learn that every one of our social connections has been sold to the highest corporate bidder.

"So it's not that MySpace lost and Facebook won. It's that MySpace won first, and Facebook won next. They'll go down in the same order.

"The longer the company can maintain the illusion of great profits without alienating its user base, the longer they can delay the inevitable decline. But given that Facebook has already begun cashing in its chips, that moment has quite likely arrived."