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.