In the 10 years since Google became a public company, there have been a lot of predictions made about the search engine giant. And it turns out, a lot have been wrong.
”I wouldn’t be buying Google stock, and I don’t know anyone who would.”
— Jerry Kaplan, futurist, in the New York Times, Aug. 6, 2004
The problem with making any public pronouncement about Google GOOGLE INC. GOOGL -0.41% is that if you end up being embarrassingly wrong, someone can just Google that prediction to remind you how off the mark you were.
So that’s what we did.
With Tuesday being the 10th anniversary of the tech giant’s historic IPO, MONEY Googled the sweeping predictions that were made about the company and the stock leading up to and after the company’s public offering on Aug. 19, 2004, when Google shares began trading at an opening price of $85 a share.
To be fair, no one could have really predicted the stock would soar more than 1,000%—10 times greater than the S&P 500 index—in its first decade as a publicly traded company. You have to remember that in 2004, the Internet bubble was still a recent memory and Google’s offering was seen as the first significant tech IPO in the aftermath of the 2000-2002 tech wreck.
Still, it’s hard not to wince at some of the things said about what is now the third most-valuable company, with a market cap of nearly $400 billion.
1) Google won’t last.
What are the odds that it is the leading search engine in five years, much less 20? 50/50 at best, I suspect… — Whitney Tilson, The Motley Fool, July 30, 2004
In a memorable 2004 column, value investor Whitney Tilson argued that there was a significantly better chance that Dell would still be a leading computer company in the year 2024 than Google would be a leading search engine in 2009.
Obviously, he was wrong as Google still controls nearly 70% of all search and more than 90% of the growing mobile search market. (Meanwhile, Dell’s PC market share has shrunk considerably and desktop computers aren’t even a growth area anymore).
His argument may have made sense at the time. “Just as Google came out of nowhere to unseat Yahoo! as the leading search engine, so might another company do this to Google,” he wrote, adding that “I am quite certain that there is only a fairly shallow, narrow moat around its business.”
Yet Tilson made the mistake of underestimating the actual search technology. In the early 2000s, Google’s algorithms could search billions of pages at a time when rival search engines were able to get to just tens of millions. That lead in search capability gave Google enough time to leverage that technology into a dominant position in online advertising. Today, Google controls about a third of all global digital ad dollars.
2) Google’s founders won’t last.
These Google guys, they want to be billionaires and rock stars and go to conferences and all that. Let us see if they still want to run the business in two to three years. — Bill Gates at Davos, in 2003.
Microsoft co-founder Bill Gates was, of course, referring to Google co-founders Sergey Brin and Larry Page. Not only did the Google guys not go away, eight years later Page took over as CEO, and under his tenure the company became the dominant player in the smartphone market; made inroads into social media and e-commerce; and began dabbling in more futuristic technologies such as driver-less cars that are likely to boost interest in the stock going forward.
3) Google is a one-trick pony.
I mean, come on. They have one product. It’s been the same for five years — and they have Gmail now, but they have one product that makes all their money, and it hasn’t changed in five years. — Steve Ballmer, former CEO of Microsoft, in the Financial Times, June 20, 2008.
The bombastic Ballmer, who also predicted that the iPhone would go nowhere, wasn’t the first to call Google a one-trick pony. Yet Ballmer was flat out wrong. Today, Google has several tricks up its sleeve. The company still dominates search, but it is also a major player in mobile search, mobile operating systems, online advertising, e-commerce, social media, cloud computing and even robotics.
4) And who cares about search anyway?
Search engines? Aren’t they all dead? — James Altucher, venture capitalist (sometime in 2000)
You have to give Altucher credit for fessing up to what he admits may have been “the worst venture capital decision in history.” Three years ago, the trader/investor blogged about how his firm, 212 Ventures, had an opportunity in 2000 or 2001 to be part owner of the company that would later become an integral part of Google for a mere $1 million.
As he told the story, one of the associates of his firm had approached him with an opportunity in 2000. “A friend of mine is VP of Biz Dev at this search engine company,” the associate told him. “We can probably get 20% of the company for $1 million. He sounds desperate.”
To which Altucher replied: “Search engines? Aren’t they all dead? What’s the stock price on Excite these days? You know what it is? Zero!”
“No thanks,” Altucher said. That company was Oingo, which changed its name to Applied Semantics, which in 2003 was purchased by Google and re-branded AdSense. As Altucher points out, “Google needed the Oingo software in order to generate 99% of its revenues at IPO time. Google used 1% of the company’s stock to purchase Oingo, which meant that Altucher’s potential $1 million bet would have been worth around $300 million in 2011.
5) Microsoft will chase Google down.
Word has it that Microsoft will feature an immensely powerful search engine in the next generation of Windows, due out by 2006… As a result, Google stands a good chance of becoming not the next Microsoft, but the next Netscape. — The New Republic, May 24, 2004.
Alas, Microsoft’s Bing search engine didn’t come out until three years after the article said it would. And it wasn’t until last year when Microsoft truly embedded Bing into Internet Explorer on Windows 8.1.
Even if Bing gains traction on desktops — where it still only has about a 19% market share — search is transitioning to mobile. And there, Google utterly dominates and will probably stay in control because its Android operating system powers around 85% of the world’s mobile devices, versus Windows’ mere 3% market share.
6) Google isn’t a good long-term investment.
Don’t buy Google at its initial public offering. — Columnist Allan Sloan, Washington Post, Aug. 3, 2004.
I’m back from the beach and it’s clear that my advice turned out to be wrong…But now that the price is above the original minimum price range, I’m not in doubt. So I’ll repeat what I said three weeks ago. This price is insane. And anyone buying Google as a long-term investment at $109.40 will lose money. — Allan Sloan, Washington Post, Aug. 24, 2004.
Well, investors didn’t lose their shirts. A $10,000 investment in Google back then would have turned into more than $110,000 over the past decade. By comparison, that same $10,000 invested in the S&P 500 would have grown to less than $22,000. Howard Silverblatt, a senior index analyst for S&P ran some numbers and discovered that only 12 stocks currently in the S&P 500 wound up outpacing Google during this stretch.
To his credit, Sloan, now a columnist at Fortune, later admitted that “I was wrong, early and often, on Google’s stock price when it first went public, for which I ultimately apologized.”
7) Google isn’t a good value.
If you have any doubts at all about Google’s sustainability — you may, for example, recall that Netscape browsers used to be just as ubiquitous as Google home pages — you shouldn’t touch the stock unless its market capitalization is well under $15 billion. — MONEY Magazine, July 2004.
Okay, so we’re not infallible either. If you had followed MONEY’s line of thinking, you never would have purchased this stock because at the opening price of $85, the company was already valued at $23 billion. And it never dipped below that level on its way to a near $400 billion market capitalization today.
MONEY based its analysis on numbers crunched by New York University finance professor Aswath Damodaran, an expert on valuing companies.
Damodaran came to the $15 billion assessment after figuring that Google would generate a total of nearly $48 billion in cash over its lifetime. That turned out to be a bit off, as Google has generated that amount of free cash flow in just the past five years.
Again, this was an example of how difficult it is to estimate the future value of a corporation based on what the company is up to at the moment.
8) Google will avoid being evil.
Don’t be evil. We believe strongly 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. — Google’s 2004 Founders’ IPO Letter.
Now, evil is in the eye of the beholder. Some privacy buffs think Google long crossed the line when it began tracking user behavior across all of its services including search, Gmail, You Tube, etc.
Progressives, meanwhile, point to Google’s lobbying efforts as a sign the company is behaving like any other corporation. The company has reportedly contributed to conservative causes such as Grover Norquist’s Americans For Taxpayer Reform, which seems to belie the company’s left-leaning Silicon Valley culture.
Then there’s the fact that Google’s chairman Eric Schmidt has stated that he is proud of how the company has managed to avoid billions in taxes by holding company profits in Bermuda, where there is no corporate tax.
Whether you think this qualifies as evil or not, it highlights what folly it was to try to ban evil.
As Schmidt stated in an interview with NPR:
“Well, it was invented by Larry and Sergey. And the idea was that we don’t quite know what evil is, but if we have a rule that says don’t be evil, then employees can say, I think that’s evil,” he said. “Now, when I showed up, I thought this was the stupidest rule ever, because there’s no book about evil except maybe, you know, the Bible or something.