6.2. THE DUTCH AUCTION
The IPO included another smackdown for Wall Street. Google would bypass investment bankers for the offering, using the Internet and an obscure Dutch auction process designed to draw a broader range of investors than the typical IPO. Page and Brin were deeply offended by the way investment bankers controlled who could buy shares, and often doled out purposefully underpriced IPO shares to insiders and preferred customers, who then sold the stock for a quick profit.
Google stock would be sold through brokerage houses, but anyone offering at or above the minimum bid could participate. Investors would be required to purchase at least five shares, an unusually low barrier of entry for this business.
Page explained why he and the management team chose the type of public offering they did:
Many companies going public have suffered from unreasonable speculation, small initial share float, and stock price volatility that hurt them and their investors in the long run. We believe that our auction-based IPO will minimize these problems, though there is no guarantee that it will.
As innovative as the idea was, it also brought risk. "The auction process for our public offering may result in a phenomenon known as the 'winner's curse,' and, as a result, investors may experience significant losses," warned Google. This could happen if, caught up in the auction fervor, buyers bid too high for the shares, and in the hours, days, or weeks after the listing on the stock exchange, ...