Tracking Google's IT Booty

Hopes to raise some $3B in IPO cash, of which about half could go to the company. IT spending spree coming?

July 31, 2004

5 Min Read
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Say you're a computer nerd about to land an inheritance in the low single-digit-billion-dollar range. What do you buy? That's more or less the situation at search engine giant Google Inc. right now, say data center and search engine experts around the industry.

The numbers won't be clear until after the IPO goes off and the final share price is determined by a unique Dutch auction process. But many expect Google itself to clear about half of the total estimated IPO proceeds of $3 billion after the insiders get their take (this assumes the IPO goes off, of course). That leaves plenty of cash around to spend for "general corporate purposes," according to the IPO filings.

For arguments sake, let's say Google banks about $1.5 billion for the corporation in the IPO. It's doubtful they'll use it to buy 4.6 billion U.S. stamps (37 cents), 1.35 billion 20-oz. Cokes ($1.25), 73,913 Honda Accords ($23,000), or 6.5 clones of Alex Rodrguez ($252 million for 10 years, with enough left over to sign Jeter for a few seasons). No, Google became King of Searches by being smarter than that.

Google officials declined to comment for this story. Professional investors find the company's recent tight-lipped nature as vexing as we do, as a story in Thursday's Wall Street Journal notes. In fact, the $1.5 billion is anything but a sure thing. But checking around, we learned the obvious: Google will spend liberally on networking gear, servers, and talent, whether it be with profits or fresh IPO funds.

"We currently expect to spend at least $250 million on capital equipment, including information technology infrastructure comprised primarily of production servers and network equipment, to manage our operations during 2004," states the company's SEC Registration Statement (Form S-1) of June 21.The S-1 says Google's total costs and expenses for the first quarter of 2004 were just over $234.3 million. So if the company spends approximately four times that much ($936 million) for the year, then IT is roughly 27 percent of its budget. In addition, the IT-intensive line item of research and development was $35 million for the first quarter of this year, which projects to about 15 percent more of its pre-IPO budget.

How high those numbers will go post-IPO is anyone's guess. "We've done a couple of things in trying to figure out how much a company will spend on their infrastructure," says Cindy Borovick, data center analyst with IDC. Typically, network accounts for about 20 percent of the IT budget, and servers are 50 percent. That's 70 percent of the IT budget, but as explained above in the S-1, Google's spending on IT will certainly be higher than average.

Specifically, the server spending will stay competitive because of the company's Linux preference, and because it buys from a mix of vendors. According to Google's "About Us" site, the company owns more than 10,000 servers, grouped into document servers, index servers, and Web servers -- but the company stopped updating that information long ago. Today some people claim the server tally is actually much higher.

Meanwhile, says Borovick, "I would assume that the network equipment portion would be larger," possibly more than 25 percent of the total IT budget, due to the company's numerous data centers needing to work together over high-speed connections such as 10-Gigabit Ethernet.

So who are some potential beneficiaries in the networking world? Google is a customer of both Force10 Networks Inc. and Foundry Networks Inc. (Nasdaq: FDRY), several sources have confirmed. On top of the network, Google is looking to expand its application and network acceleration, traffic management, and security, one industry source said."Google has deployed over 70 pairs of our highest-end 9000 series application delivery switches for their entire network infrastructure. This includes all of their services," says NetScaler Inc. spokesman John Oh. Radware Ltd. (Nasdaq: RDWR) and F5 Networks Inc. (Nasdaq: FFIV) are in the hunt for Google's dollars as well, sources say.

This technology helps to run 10 to 13 data centers, mostly in the U.S., according to several Websites that monitor the monthly "Google Dance" process of updating the indexes.

But this isn't just about the technology itself. Building these data centers requires people, and according to its frequently updated jobs site, the Mountain View, Calif., company is embarking on a hiring safari and offers great perks. For example, there are several data center positions available, including: technician openings in Atlanta, Mountain View, and The Netherlands; facilities manager roles in Atlanta and northern California; and careers for "hardware operations managers" in Chicago, Mountain View, and throughout the East Coast. Dozens of additional technical jobs are open in engineering, IT, partner operations, and product development. Google also advertises progressive benefits far beyond stock options, including child adoption assistance, free lunch and "all the snacks you can eat," generous time-off packages, massages, on-site doctors, and same-sex benefits coverage, according to the benefits page.

In the end, Google and the search-engine war in general may be providing the single largest boost to the slowly rebounding IT sector. The importance of IT managers and technology itself to Google's future is huge, because it provides differentiation from other search engines.

In fact, some experts say Google may be having more challenges differentiating itself on the technology side, as competitors catch up."There's not a whole lot of difference between Coke and Pepsi -- they're both colored water," notes Danny Sullivan, editor of

Google's feature differentiation goes back to core technology ability. Features like personalization, context-aware interfaces, and advanced services such as the new super-sized Gmail are some examples, IDC search analyst Sue Feldman observes.

Of course, Yahoo Inc. (Nasdaq: YHOO), Microsoft Corp. (Nasdaq: MSFT), and others won't back down easily. Given the growth of the Web, it looks as if some of the big winners in a Google IPO -- and the ensuing search engine competition -- will be IT suppliers.

— Evan Koblentz, Senior Editor, Next-Gen Data Center Forum

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