Google’s IPO is the talk of the town today. The company’s decision to take an unconventional approach (called a “Dutch auction”) and offer shares for sale to small investors has drawn the ire and ridicule of all but a few (Fast Company magazine praises Google’s courage in their current issue, but they’re the exception).
Who knows if it will earn Google the extra hundred’s of millions of dollars that they hope for… that’s not the real story here anyway. The real issue is about Google breaking the rules for how big companies do IPO’s and the hue and cry it has raised among the entrenched investment banking community.
This is a classic example of an emerging trend that is signaling a sea change in how the established system works. The traditional way of doing IPO’s involved the investment banks determining the market price, offering the shares to their best customers, and raking in huge profits as a percent of the capital invested. A Dutch auction involves selling directly on the open market, thus avoiding much of the cost and generating significantly more capital for the company.
Google isn’t the first company to use this approach but it is the biggest. The institutional investment community is hoping and praying that it will fail… because, if it doesn’t, their way of doing business will change profoundly and they will end up big losers. Predictably, they’re doing Defend & Extend (D&E) actions to protect their Success Formula—ridiculing the approach in the press, vowing to boycott the IPO, etc.
Here’s the bad news for the entrenched institutions: the game is already over. It doesn’t matter how Google’s IPO goes, your Success Formula is doomed. Why? Because it is obsolete for today’s technology and today’s society. It has been propped up for years through oligopolistic practices, cronyism, fear-mongering and intimidation. But the evolution of Success Formulas is relentless and undeniable—yours will fail and be replaced, it is only a matter of time. However, due to your lock-in to the current system, it is unlikely you will participate in the new system that emerges.
That’s bad for the entrenched investment community, and good for just about everyone else, and that should have been their first clue that something was amiss…
