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Google at Five: Happy IPO Birthday

Five years ago today, Larry Page's and Sergey Brin's dorm room project Google was reborn as a publicly traded company, going out at what was then a jaw-dropping $85 a share in that unusual Dutch auction, closing that first day of trading at $108 and change.

And what a wild ride it has been since. For those lucky enough to get that early taste, today is a Happy Anniversary indeed. You're up about 400 percent. For those who got in a little later, the many happy returns haven't been so mouth-watering. And for those who jumped in face-first around Dec. 7, 2007 when Google's market cap topped $226 billion, you're still longing for those salad days gone by.

And many of you doing that longing work at the company and got a very localized Google bail-out when the company repriced options to keep you on campus. The day of the IPO, Google employed about 3,000 workers. Today, the payroll has swollen to just under 20,000 so it stands to reason there were thousands of workers under water, leading Google to embark on a sweeping, some say controversial, repricing program.

Which brings me to my point on the 5th anniversary: Google's trajectory by and large has been consistently up and to the right, but there have been hiccups along the way, and there are surely more hiccups to come. In fact, with the law of large numbers, and advertising revenue growth a fraction of what it was for Google just a few years ago, those hiccups may evolve into the occasional gasp for air.

Let me accentuate the negative for a moment in a kind of Google reality check: Advertising dollars still make up 95 percent of Google's revenue and it is still in decline. Microsoft's new Bing search engine is beginning to gain traction in the marketplace. Microsoft finally has inked a partnership with Yahoo . Google is entering new markets, which is good, but those markets -- including mobile and PCs, are dominated by smart, slick, and infinitely capable competitors like Apple , Research in Motion and Microsoft. Go big or go home, I guess.

Oh, and Eric Schmidt, the company's CEO, was forced to leave Apple's board of directors amid increasing government scrutiny and direct competition between the two companies.

Google has made big acquisitions like Youtube and smaller ones like Postini, trying to grow however it can. A series of innovations might be neat, but they don't generate cash.

That's the bad, even the ugly, when it comes to Google at IPO age 5. But let's talk about the good for a moment.

This company is still THE brand on the net. And while advertising might be soft today, it ain't always gonna be soft, and this company, even with the paradigm that might or might not be coming from Microsoft and Yahoo, still offers the very best online ad platform, bar none. And advertisers know it. While Yahoo and Microsoft fumble about, trying to integrate themselves, Google isn't sitting still. It's got an enormous R&D budget and has shown in the past it isn't shy about spending.

Sure, Google is still largely a one-trick pony, but that pony is more like Kentucky Derby quality, and not the miniature horse offering rides at a kiddie party.

And don't underestimate market interest in operating system alternatives. I'm not saying Google's Chrome and Android software is the automatic answer, but they sure could be. We don't know about Chrome just yet, but early acceptance of Android outside the US is intriguing. And Schmidt's departure from Apple's board is the clearest indication yet, as I have written before, that Google is transforming into a company far different than the Google we got to know five years ago.

Google's biggest threat over the next five years might be itself. There's a "cool kid," "god squad" kind of mentality over there. The swagger was fine when the feds weren't paying attention, and competition wasn't swelling around it. But the climate is different today. Google has always marched to its own beat, and I'm sure it will continue to so. The stock's up 400 percent in five years, so who am I to question strategy?

However, the company will need to adapt to these changing conditions and that's exactly what Google is doing. We are witnessing a dramatic change in the direction of this company. How quickly it can achieve those changes will determine how compelling the company is for investors. But I have to believe, with the groundwork being done today, that Google is still an enormously attractive investment over the next five years. Maybe not 400-percent attractive, but enormously attractive nonetheless.

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