I've posted a rough draft of my Google/branding paper on SSRN. The paper still has a ways to go, but I will be presenting it in workshops this week and next, so I thought I'd go ahead and seek some feedback from the Glom readership as well. Feel free to comment below, or just email me separately.
Here's the abstract:
Branding is an unappreciated feature of contract design. Corporate finance scholars generally assume that consumers focus on product attributes like price, quality, durability, and resale value. But consumers choose brands, not just product attributes. This Article claims that the legal infrastructure of deals sometimes has a branding effect - that is, an effect on the brand image of the company. Deal structure affects the atmospherics of the brand.
I explore this link between deal structure and brand image by examining the Google IPO from last summer. From a traditional corporate finance perspective, the goal of a properly structured IPO is to overcome the information asymmetry between issuer and investors and to lower the cost of capital. From this perspective, the success of the Google deal is questionable. Few would call the deal elegant or efficient. But this is not really what the Google IPO structure was about, or at least it is not the full story. When Google structured its IPO as an auction, it reinforced its image as an innovative, egalitarian, playful, trustworthy company. Talking about Google's IPO makes you want to use Google's products. By that measure, the deal was a success.
I also examine the branding effects of three other deals: the Ben & Jerry's public offering in 1984, which sold stock only to Vermonters; Steve Jobs's contract with Apple, which entitles him to cash salary of exactly one dollar; and Stanley Works' failed attempt to reincorporate in Bermuda to minimize its tax liability.
Finally, I conceptualize the role of branding as it relates to deal structure. Certain legal events in the lifecycle of the company - what I call branding moments - provide opportunities for firms to signal company values. I also three types of companies - cult companies, integrity companies, and social responsibility companies - that are in the strongest position to take advantage of the branding effects of corporate deal structuring.
I'm still working out the theory section and very much open to suggestions or ideas. Thanks!
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1. Posted by Eric Goldman on August 29, 2005 @ 14:52 | Permalink
I'll have to read the paper to see...if you explain the difference between a "brand" and a "product attribute." I think they are the same thing. Eric.
2. Posted by Steve Diamond on August 30, 2005 @ 22:28 | Permalink
Victor, I think there is certainly something to this link. But I am less sanguine about its value. I think this was one of the downsides of the late 90s boom (see Po Bronson's chapter The IPO in Nudist and the Late Shift on CEO ego). My view is that Google IPO was so badly handled that it probably hurt the brand more than it helped....the Playboy interview, the failure to register stock options, the inability to figure out what the price really ought to be, the attempt to use the Dutch Auction process for a huge offering when the infrastructure did not even exist for it (Merrill dropped out), etc. Now some of the SEC correspondence is coming out and the picture is not pretty. Since I know the lawyers who handled the deal (on the inside and outside) I am quite certain the problems had to have been created by the senior management team and given Eric Schmidt's long experience in publicly traded companies (Sun, Novell) I have to conclude that the blame lies with the founders. Since the company really remains closely held (dual class cap. structure with 10-1 voting adv. for insiders), it seems a classic problem of founder ego getting in the way. Given the value of the franchise and arguably the technology the market has given them a lot of leeway. But how long will that last? My best guess as to why they are doing a secondary of $4bn? They know the top is in....
Steve Diamond
3. Posted by Vic Fleischer on August 31, 2005 @ 8:31 | Permalink
Thanks Steve. I need to work on that in the paper -- you are right that the unusual structure (and execution) generated some negative branding effects as well. Maybe I can call it the "arrogant bastard" effect or something. On the other hand -- as frustrating as it must be for the lawyers to put with -- the founders have created what looks like a powerfully creative corporate culture. So it may a case of taking the bad with the good?
4. Posted by ro674ck on July 3, 2007 @ 4:55 | Permalink
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