Google's IPO is the hot news item - their SEC Filing says it expects to raise as much as $2.7 billion from the offering. $2.7 billion? It's my contention that this thing is severely overvalued. Severely. To put it into perspective, let's compare it to a company that has a similar market value - Apple Computer. In 2003 the enterprise value of Apple from the Forbes 500 list was $3.184 billion. This number takes the market cap and adjusts for long-term debt, cash, non-cash investments, etc. So let's say Google is roughly valued on paper as being the same as Apple - around $3 billion, give or take a few hundred million either way. Does anyone see why Google is overvalued? Anyone?

Let's look at it from this angle: What does it take to run a company like Apple? They make software and hardware, including operating systems, computers, iPods, etc. What does it take to run a company like Google? Cheap computers hooked up to the internet and some programming code to let people search. Granted - their search is very very good. Excellent. I use it several times a day as my default search engine. I advertise with them using AdWords. But fundamentally do you see a difference?

Take Google. Could I start a company like Google? Very easily. How? The same way they started - with a computer connected to the Internet and some savvy programming. Of course I would need to grow it at a fast rate and Google does that with it's server farm, but let's face it - the servers aren't expensive - a couple of hundred dollars each for an Intel box running Linux. Now their technology is good - that's why Google is so hot, because it works and it works really well. But let's face it - one of us could easily start up something that could compete because it doesn't require a lot of startup capital.

Take Apple. Could I start a company like Apple? Not easily. I could start a company like Google out of my home office, but not a company like Apple that has products, distribution, advertising, etc. It would require so much startup capital that it would be almost infeasible to try. And that's my point here. It's pure economic theory: Barriers To Entry. That's why Google is way overvalued - there are very few barriers to entry for a competitor to come in and make this a truly competitive market. Google came out of nowhere and built it's name on a solid product, heck, the word Google is used as a verb it's so good - to google means to search (I won't even get into brand dilution following examples of Kleenex, Xerox and more here). But what's to keep someone from coming out and doing the same thing? Building the next big thing that works even better or at least just as good? Not much. As a matter of fact Yahoo! and Microsoft are already making changes to their search technology to mimic and compete with Google. What's keeping someone from starting up a company to compete with Apple? A whole lot. Lots of barriers to entry. I'd have to partner with chip manufacturers, hardware manufacturers, distribution channels, etc. It's be a startup headache because of the pure cost. Barriers to entry mean Apple can keep coming up with new cool stuff because it would cost competitors a lot to innovate like that. That doesn't mean we couldn't reverse-engineer their stuff, but Apple would continue to lead the way. Google shares a similar advantage with leading the way. Their brand name is extremely valuable. But internet technology stocks are fickle. It wasn't too long ago Yahoo! was the next big thing, remember? It's just a concern of mine that we're falling into the lure of the online tech stocks again - having come full circle in the small amount of time it's been since the bubble burst. I don't deny Google has an awesome product and a decent business model (contrary to a lot of the internet stock flops of past years), I just know the nature of the internet is ever-changing and "Next Big Things" come along all the time. And that barriers to entry thing really worries me.