Google’s Post-IPO Development: risks, rewards, and shareholder value

Abstract

Internet history shows that states, military, universities and other public institutions were essential drivers of innovation in the early stages of network development. However, once risky stages pass, commercialisation starts and investors often reap disproportionate rewards from technological innovation. In this paper, we use the risk-reward nexus (RRN) approach (Lazonick & Mazzucato, 2013; Mazzucato, 2013, 2018; Mazzucato & Shipman, 2014) to understand the imbalance between risky public investment and private allocation of rewards regulated by financial markets. We analyse risk reporting in Form 10-K market reports submitted to the Securities and Exchange Commission (SEC) by Google Inc. (Alphabet Inc.) for the period between 2005 and 2019. We detected 58 organisational, marketing and advertising, technological, legal, competitive, and macroeconomic risks. Based on changes in risk reporting three stages of Google’s development can be discerned: post-IPO growth and expansion (2005-2008), growth management and investment diversification (2009-2013), legal struggles and regulatory scrutiny (2014-2019). Reported risks are primarily directed at shareholders, omitting risks relating to internet users, courts, regulators, and nation states. Such an approach is historically rooted in the construction of financial regulation in the name of public interests and markets, with public interests largely interpreted as a proxy for investors’ interests.

Keywords:

• Google
• initial public offering (IPO)
• shareholders
• risk-reward nexus (RRN)
• economic history
• technological innovation

Disclosure statement

No potential conflict of interest was reported by the authors.

Notes

1 As one head of global equity research firm stated in a CNBC interview, a company whose message is changing from year to year is never a good sign. New risk factors, for example, are a red flag. Say a big industrial company suddenly adds an environmental liability, like asbestos liability, or it could be a patent lawsuit. “If there’s a change, that’s because the lawyers told them they had to put that in there” (MacBride, 2014)

2 Between its incorporation until 2002, Google signed contracts with more than 130 companies, thus creating a vast group of Google Network Members (Greenstein, 2015).

3 Internet advertising surpassed radio advertising in 2007, daily newspapers in 2010, and television in 2016 as the main medium for advertising investments in the United States. Search advertising represents the majority of internet advertising (PricewaterhouseCoopers, 2018).

4 In 2014, Google sold Motorola to Chinese Lenovo for $2.91 billion. In the meantime, it used the acquired patents to strengthen its position in the mobile operating system market by further developing Android OS for smartphones (Su, 2014).

5 In October 2018, Google was the biggest U.S. digital media property with 245 million unique visitors on all Google sites (Neustar, 2018)

6 In 2019, Google was the world’s second most valuable brand, behind Apple, with an estimated value of 167.7 $billion (Forbes, 2019).

7 Between 2003 and 2012, 449 S&P 500 companies dispensed 54% of earnings, equal to 2.4 $trillion, buying back their own stock, mostly through open market transactions (Lazonick, 2014, p. 2).

Additional information

Notes on contributors

Paško Bilić

Dr Paško Bilić is an ethnographer, media theorist and critical sociologist. He is Research Associate at the Institute for Development and International Relations in Zagreb, Croatia. Previously, he was International Visiting Research Fellow at the Institute for Advanced Studies, University of Westminster (London, UK), short-term researcher at Istanbul Bilgi University (Turkey) and the University of Bremen (Germany), as well as Doctoral Research Fellow at the University of Alberta (Edmonton, Canada). He published in journals such as Javnost (The Public), Political Economy of Communication, triple C: Communication, Capitalism & Critique, New Media & Society, European Journal of Communication, Big Data & Society, and Interactions: Studies in Communication and Culture. He is the author of Sociology of Media: Routines, Technology, and Power (Jesenski i Turk, 2020 – in Croatian) and main editor (with Jaka Primorac and Bjarki Valtysson) of Technologies of Labour and the Politics of Contradiction (Palgrave Macmillan, 2018). Currently he is writing a monograph (with Toni Prug and Mislav Žitko) titled The Political Economy of Digital Monopolies: Contradictions and Alternatives to Data Commodification (forthcoming with Bristol University Press, 2021).

Toni Prug

Dr Toni Prug is an independent researcher based in Zagreb, Croatia. Previously, he was Teaching Assistant and guest lecturer at the School of Business and Management, Queen Mary (University of London), where he also obtained his PhD on non-market and egalitarian production in 2014. He holds a BA in Sociology (Goldsmiths, University of London) and he has been presenting regularly at heterodox economics, political economy and Marxist conferences for over a decade. He appeared as a guest lecturer at the University of Zagreb and Rijeka, faculties of Economics, Political Science, Sociology and Cultural Studies. He published on a variety of topics, including development theories, Free Software, and models of academic publishing. He has ten years of experience as a software and networks engineer in London, UK, producing both proprietary software and releasing Free and Open Source software.