Google wants shares to go to highest bidders, not just industry insiders, writes Brandon Glenn

When investors look at the initial public offering (IPO) strategy of internet-search firm Google, their thoughts may turn to another internet superstar, the auction site eBay.

Google has eschewed the typical IPO process in favour of an online auction, ensuring its shares go to the highest bidders instead of the well-connected insiders who often dominate the IPO market.

As opposed to performing complex analyses to determine Google's IPO price, underwriters Morgan Stanley and Credit Suisse First Boston are busy developing software to manage the auction process, a daunting challenge according to Google.

"We expect our auction structure to face scalability and operational challenges," the company wrote in its prospectus. "Our underwriters' systems that manage the auction process could fail to operate as anticipated."

Mr Neil O'Leary, chief executive of corporate finance firm Ion Equity, worried that Google's decision to conduct its IPO by auction could be ill-advised.

"Google's management team is excellent at innovating within their own area of expertise, but the concern is that they want to innovate in someone else's area of expertise," he said.

For its part, Google claims that it settled on the idea of an auction in order to allow both large and small investors an equal opportunity.

In the typical IPO, Wall Street investment banks offer shares to preferred clients, who can turn around and sell them on the market if the price rockets up, often reaping huge profits

"Many companies have suffered from unreasonable speculation, small initial share float, and boom-bust cycles that hurt them and their investors in the long run", the company said. "We believe that an auction-based IPO will minimize these problems."

Google has not announced when the auction will be held or at what price the bidding will start.

Mr O'Leary said he thought there was a small risk that the auction process could create a "bubble", with individual investors bidding up the price artificially in the absence of an investment bank's oversight.

"Especially if it's successful, a lot of other companies will take advantage," he said. "It could fuel bubble-like activity but regulators will be looking at it closely."

Mr Simon Howleyof Goodbody Stockbrokers said he thought the auction might lead to an inflation of Google's price, but it was unlikely to produce the type of tech bubble seen in the late 1990s.

"You have some concerns about where the price might end up," he said. "This is one of the companies that maximised everything about the internet. The risk is that people don't look at the fundamentals and people are so keen to get involved that the price gets out of control."

Mr Mark O'Donovan, also of Goodbody, added: "The Greenspan days of overexuberance won't return because there's been such a decimation of capital over the last few years."

Mr O'Donovan said that all the hype surrounding the IPO was because Google is such a unique and notable company.

"This is another eBay, Amazon, Microsoft or Cisco," he said.

Mr O'Donovan said he thought the Google IPO could signal a shift in fortunes for the tech sector, which could also benefit the sector here.

"There's been a lot of pain for last two or three years, but people are getting the feeling that tech investment can have good returns and is a good place to put their money," he said.

He pointed to companies like Web Reservations International and Eontech, recently acquired by US software heavyweight Siebel, as signs of renewed life in the Irish technology industry.

Mr Sean Murphy, an analyst with Nomura International, thought Google's choice to employ an auction wouldn't make much difference in the stock price.

"The risks are there whatever mechanism they choose," he said. "It's one of highest profile IPO's in recent memory."