Tech Check

Google 'News' Grabs Headlines; But Should It?

Federal Trade Commission

Another day, another spate of Google headlines. Read them, and go no further and it looks as if this company is under attack from all sides: The Federal Trade Commission opens an anti-trust investigation; the company's multi-million investment in co-founder Sergey Brin's new wife's biotech start-up is raising hackles. Oh the horror!

Let's look at these two items a little deeper. First of all, I'm a reporter and I like a juicy scandal as much as the next guy. I'm also skeptical and wary of too much power too soon. And while I appreciate Google's corporate mantra of "Do No Evil," I'm of the school that that's more a guideline than a rule.

So all of that aside, let's examine the FTC investigation. The Federal body is composed of, follow me here, "investigators." Its job is to investigate deals. Big ones. Small ones. Google is arguably the biggest name in tech. It announced a $3.1 billion deal to buy DoubleClick. Investigators have a duty to do their jobs. The FTC investigation was expected. It's here. And it actually may hold a silver-lining of sorts: it tells investors that the process to get this deal approved has begun, and may be the strongest indication yet that if all goes to plan, the deal could close by year-end. Exactly what Eric Schmidt, the company's CEO, has been saying all along.

Something else: within days of the deal news breaking, Google competitors Microsoft, Yahoo and various others began beating the anti-trust drum, loudly complaining that a merger could create a company too powerful on the internet. But since then, Microsoft bought Aquantive for $6 billion; Yahoo bought Right Media for $680 million; 24/7 was acquired by WPP for $679 million. Seems that while all these companies were pleading "weakness," they were all beefing up their business to better take on Google. And that in itself could be enough to sway investigators that Google deal isn't the threat it may have once been.

"Obviously it's a very visible transaction," says Mike Cowie, a former assistant director for the Federal Trade Commission and now at Howrey LLP in Washington, DC. "The FTC will certainly investigate in response to complaints. Given this is a rapidly changing industry and given that Google and DoubleClick have different focuses, this is a deal that ought to be cleared in the end."

There's also that other situation swirling around the company: Google's decision to invest $3.5 million in a biotech startup called 23andme; a company co-founded by Google co-founder Sergey Brin's new bride Anne Wojcicki. ON the surface, it smacks of a sweetheart deal for a co-founder's sweetheart. But let's look deeper, shall we?

The fact is, Google is a dual-class share company. Class A and Class B. One matters; the other doesn't. Sergey Brin owns 28.6 million shares; Larry Page 29.1 million; and Schmidt holds 10.7 million shares. The three together control well 65% of the voting shares. That means they run the show. They make the decisions. And shareholders knew this going in, if they managed to read the prospectus detailing Google's dual-class share structure. That doesn't mean that the company is devoid of all fiduciary responsibility to shareholders. It merely means that shareholders have to expect that the company will make decisions and they have no voice or influence in how those decisions are made.

Early on, when this story broke, there were immediate comparisons to World Bank President Paul Wolfowitz and the compensation deal he struck for his girlfriend who worked there.The World Bank board was outraged and the scandal ultimately led to his resignation. But this case is different. Wolfowitz was beholden to his board. But Google's board is beholden to Brin, Page and Schmidt. Period.

Also, a little perspective here: we're talking about a $3.5 million investment from a company worth $156 billion! This is tantamount to what Google probably spends on shrimps at the company's commissary every month. It's incidental, irrelevant. A non-issue. Google is not their personal Piggy Bank. But it's close. And if investors don't like it, they can pull their money and go somewhere else. But they won't.

"The reality is, they're not only allowed to do this, but the reason you own Google is because of the outstanding management team. Yes, this is a little bit of a black eye, but they can do it, and you ultimately want the key management team on your side, and it's a good thing Google has these people working for them," Piper Jaffray's Gene Munster tells me.

Yes, "working for them." And for investors. Questions?  Comments?