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Dillian: Lessons From 10 Years of Google

Editor's Note: This article was originally published at 10 a.m. EDT on Real Money on Aug. 19. Sign up for a free trial of Real Money.

Google (GOOG - Get Report) just celebrated the 10-year anniversary of its initial public offering. There are lots of lessons here.

First of all, I remember exactly where I was when Google went public. I had just taken over the ETF desk at Lehman Brothers. I was sitting in the back of the trading floor, back up against the staircase, and I had something of a vista, looking out over cash and derivatives and programs and everyone else. If you recall, Google had a direct-to-investors online offering. I don't remember the details of how it worked, but it wasn't a firm underwriting. I also seem to remember Google raising some multiple of pi amount of money, like 3.14 billion or something like that. This was back when Google was a lot funnier than they are now.

The stock was offered at $100. In the first few seconds of trade, it plummeted to $96. The whole trading floor said "ooooh." This wasn't a surprise, though -- the Street had been very bearish on this quirky company that was, after all, just a search engine raising all this money. But what happened next is what surprised everyone. It rallied, back through $100, and went higher throughout the rest of the day. It never saw that price again.

Wall Street continued to hate the stock. The shares went higher and higher. It was just a search engine, they said.

So, like I said, there are a few lessons here. Google was a fairly large company when it went public, but it was nowhere near as large as Facebook (FB - Get Report) is right now. For investors, there was still plenty of upside potential. But people were really focused on this search engine that was commanding such a high valuation. I mean, to most people, a search engine was something like Lycos or Ask Jeeves. What was different about Google?

Here's was different about Google: While everyone was busy talking about this overly expensive search-engine stock, the company was busy launching satellites into space to map out the entire planet so people could find their way around -- and charge nothing for it.

Now why would Google do something like that? Why would they offer Google Maps for free? Why would they offer Google Drive for free? And Google Analytics? And Gmail? And Google everything else?

Because their goal all along has been to own the entire Internet.

I'm not kidding. Remember about six months ago, when Google had an outage? 40% of the Internet went completely dark. People depend on Google for just about everything they do online. It is a ruthless monopolist, but in a very oblique way, such that it would be impossible to accuse it of being a monopolist. But the fact is, if you are using Maps and Drive and any of the other dozens of services they offer, you are captive to Google. The profit engine that powers the whole thing -- that pays for the satellites and self-driving cars and everything else -- is the AdSense division, which is fantastically profitable.

So this is why Wall Street guys wear boring suits and commute to work in the city like drones. They literally have no imagination. They were busy trying to figure out the expanding multiple on a search engine. Fast forward 10 years, and the search engine is building robot cars and who knows what else in the Google X division, the company's research-and-development unit.

So the lesson here is that some companies are so different, so special, that what you think they are is not what they will turn out to be. The management is so smart, so visionary, that you should not sell these people short. Such companies really will change the world.

That's only a handful of companies, though. Most tech companies -- such as TripAdvisor (TRIP - Get Report) , for example -- will let you make hotel reservations, and that's about it. TripAdvisor is clever about it but, at the end of the day, it's an online travel agent. Google was something very different -- and, all throughout 2004, all anyone wanted to do was short it.

At the time of publication, Dillian was short TRIP.

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