“Data-Driven Thinking" is written by members of the media community and contains fresh ideas on the digital revolution in media.
Today’s column is written by Louis Moynihan, vice president of product innovation at Demandbase.
Microsoft will pay $26.2 billion for LinkedIn, which represents a 50% premium on LinkedIn’s stock price at the time when the deal was announced. The price tag is also seven times LinkedIn’s 2016 revenue run rate, which is a very healthy valuation.
LinkedIn fell from its high of $262 per share in February 2015 mainly because growth rates were not at the level wanted by Wall Street. Wall Street’s expectations overshadowed the need for more aggressive paths to higher revenue growth.
However, I believe LinkedIn is only at the beginning of a very fruitful journey. The complexities of B2B marketing mean the LinkedIn journey will not be as linear or as simplistic as the Facebook journey, for example, and strategic suitors are more of a dependency in the B2B marketing landscape.
Today’s Growth Opportunities
Within the context of LinkedIn’s current mode, recruiting itself is not maxed out and there are lots of growth areas around vertical content, subscription services to active groups and the mapping and mining of very specific skills, projects, papers or posts. LinkedIn Pulse is only the beginning, and there is huge runway in any specialist area where hiring outpaces the supply of talent.
There are rarely recessions where all industries contract. While some industries pull back, other industries are in the growth stage. LinkedIn can really take advantage of servicing the industries about to break out with much deeper content.
From Cradle To Grave
My cousin, who just graduated with a computer science degree, was looking for an internship last year. Initially he didn’t have a LinkedIn profile. I explained that an empty profile is better than no profile, and any related experience can be written in a smart way to emphasize his learning more so than the level of seniority.
My cousin now works for IBM but the lack of networking skills at universities shocked me. I realized how underutilized LinkedIn is pre-career. LinkedIn has a bright future in supplying tangential but necessary tools pre-career, which of course will come back to them tenfold in later years.
The same could be said at the end of one’s career, where massive experience sets are abruptly abandoned. In an increasingly digital world, LinkedIn could easily take advantage of virtual help from a workforce that is experienced and semiretired but less mobile. It is possible users could be engaged in LinkedIn for decades more than current sporadic use.
If users derive more utility, more satisfaction will translate into increased usage, and more usage will translate into a bigger network effect. LinkedIn is only at the beginning of this journey.
Focus On Industries
The more successful LinkedIn is at industry-specific content, the more successful it will be in offering HR services, and, ironically, the more valuable its marketing services revenue will be. Core services come first and marketing services will naturally follow.
Growing marketing services ahead of content and HR would be devastating, but B2B marketing innovations will probably be account-based and industry/subindustry-specific. Offering industry-specific content in a much richer way than it is today could solve all the chatter about LinkedIn spamming users. If a seller doesn’t have industry-specific content or value, they get blocked.
The Real Opportunity
Software integrations are where the future product innovations should be. Most business audiences and industry experts tend to spend most of their time in email software, worksheets, word processing, CRM, web search, social networks, business publications and entertainment publications.
LinkedIn’s future untapped opportunity will be integrating LinkedIn content and business networks with all primary software that business users live in today and tomorrow. I do see a world in 10 years where our interactions with email, text, Instant Messenger and voice will merge in a way that might make “Star Trek’s” “Beam me up, Scotty” look old-school.
For LinkedIn to understand all vertical context, it cannot rely only on deliberate user input; LinkedIn needs to draw APIs from all primary software in use and match those taxonomies to its users. Think about it for a second: In what software do you spend most of your time? When you walk into your next meeting, would it not be productive to have your email, calendar, conference and networking tools seamlessly connected, or, better yet, combined into just one piece of software?
This is the opportunity for LinkedIn and Microsoft. I’m not suggesting they will execute – I am only suggesting the opportunity is larger than $26.2 billion if integration and execution occurred even in a modest way. If the above APIs can be realized, there will truly be an unprecedented artificial intelligence opportunity – one Big Blue and Watson would be drooling over, and maybe they did.
A Subpar Price Tag
If you are a business user in email, on a website or searching outside of an app, your business network, industry context and upcoming calendar invites could all be merged and available without toggling through five different applications.
While the user interface might need its own leapfrog innovation, I am very confident that LinkedIn’s $26 billion sale price completely undervalues the larger opportunity in B2B’s multifaceted convergence. It would be more valuable if Microsoft integrations resulted in more software sales by Microsoft, relieving LinkedIn from the risk of overemphasizing advertising revenue.
While I am excited for the LinkedIn/Microsoft media opportunities, I hope Microsoft doesn’t allow the tail to wag the dog. LinkedIn has been reasonably focused on user value first and advertising second, so I have no reason to believe that will change. I do think the B2B media opportunities in Microsoft’s and LinkedIn’s walled gardens are very valuable, but I am hopeful the software integrations are where the product and positioning emphasis will be.
From an ecosystem perspective, to maximize the opportunity LinkedIn may need to integrate with at least two of the following:
- Google (search, display, attribution, DMP, website analytics)
- Salesforce (CRM, Pardot, ExactTarget, Social Studio)
- Oracle (BlueKai, Eloqua, Responses)
- Microsoft (Bing, Dynamics, Exchange, Office 365, Azure, Skype)
Hopefully, LinkedIn moves toward multiple Microsoft integrations in a deeper way than a tentative partnership. We might very well see LinkedIn reduce its relationship with Salesforce, Oracle and Google, although an agnostic set of integrations would be a smarter move in driving more adoption.
A New Sheen For B2B
B2B marketing also got even more interesting. Microsoft business software, Outlook and Skype combined with LinkedIn content and networking data becomes first and foremost a productivity booster. If that succeeds, then and only then will B2B marketing solutions take a major leap forward in account-based targeting and account-based relevance.
B2B marketing has never been so strong. It’s never really had a market sizing done by Forrester or Gartner, which is shameful. Microsoft’s $26.2 billion valuation of LinkedIn is an indicator of the higher valuation of B2B marketing as a whole.
To put this in perspective, Linkedin is only a decade old and has a $4 billion revenue run rate this year, a 20% revenue growth rate in marketing solutions and not a lot of competition in this specific B2B segment. Yes, Microsoft could screw it up, but there is also a fair chance Microsoft will increase the growth rates well beyond 20%. With B2B’s market size and the software integrations growth opportunity, I’m rooting for them.
I will be watching for leading indicators of success or failure. An indicator of success would be at least two near-term integrations with Dynamics, Outlook or Skype. An indicator of failure might be silence or shallow press releases. Another indicator of success for the B2B opportunity as a whole is similar activity between other players, such as a Google or Salesforce integration. If LinkedIn is to thrive, it has to integrate into all major software that a business user lives in, and it might be hard to ignore the leading email and CRM providers.
The LinkedIn deal is a big, expensive move, and while I appreciate all the commentary that Microsoft overpaid and snarky remarks that a co-product will never happen, I do see the logic and potential compounding value. Like everyone else, I'll wait and see how it plays out.
There is one fact no one can deny: B2B marketing is bringing sexy back.