Couple things here... Like with any auction the market price is set by the person willing to pay the most (this is what makes eBay a bad place to buy something that's in demand), in a normal marketplace price falls at the mode between the person willing to pay the most and the person willing to pay the least. Net result? Assuming there is a strong demand, Google makes a lot more money doing it this way than having a traditional IPO. Also, despite the fact they are doing a dutch auction they are still doing the offerings through 2 traditional underwriters which means you have to open an account with them and fund it with whatever their minimum balances are (i.e. you can't just buy from your eTrade account).

I'm not bagging on Google, I think it's a brilliant strategy (make more money while looking like the good guy), but it's always good to know the full story:-)
# posted by  Marc : May 20, 2004 at 11:36 AM  

Comparing Google's Dutch auction to an eBay auction is folly. The Google auction is not a 1-to-1 auction where the top bidder takes all, but rather the price is set by the lowest bid from the top of a predetermined number of bidders instead of the highest bidder ? this results in a weighted aggregate price. For example, if there are 1000 of us bidding on a set of items in a Dutch auction and our bidder sample is set to the top 200, then the price would be set by the lowest bid out of the top 200. Another point, and this is important to remember, is that people buy stock in a company with the idea that the price will increase over a comparably short time period compared to items in a Tiffany auction ? this means that if people commit to too many shares at a price that is too high, which results in a falsely inflated initial price, then they are just screwing themselves as the stock price would decrease upon commencement of open trading. The net result is not necessarily that Google makes more money from a Dutch auction, but that the market truly sets the price instead of a bunch of corporations and wealthy individuals.

Regarding having to open an account with Google?s underwriters (originally Morgan Stanley & Credit Suisse) in order to get in on the auction ? there?s always a middle-man involved with market trading, so that?s hardly a reason to bemoan Google. And, actually, you *will* be able to buy shares with eTrade once shares hit the market ? you just can?t participate in the initial auction. ;)

I think that Google just may be doing this in good faith ? they?re going to make money any way they go about it, so why not be the good guy in the process?
# posted by  Travis : May 23, 2004 at 12:23 PM