Commentary
Looking For Innovation? Buy It.
- by John Motavalli , Columnist, June 15, 2016
Microsoft’s purchase of LinkedIn this week got us thinking. LinkedIn, the pioneer business social network, was a brilliant idea, one that should have occurred to other online companies before 2003, when LinkedIn launched. It’s a truly global company with a remarkable penchant for hiring the right people and growing quickly — fully 60% of the employees have been with LinkedIn for less than two years. It has a net revenue growth rate of approximately 65.2%, with over $1 billion in ad revenue expected this year.
Microsoft isn’t just buying a company. It’s buying 5,700 wired employees from every major online hotspot and a major improvement of its programmatic advertising prospects. Marketers know that advertising to 433 million people who post huge amounts of information about their business side is valuable on so many levels we lose count.
Why didn’t Microsoft itself come up with LinkedIn? Why did they wait 13 years to buy it? For that matter, name the innovations coming out of Microsoft since Windows, the operating system which itself was copied from Apple, some observers charge. Not coming up with much? It’s easier to list all the things that Microsoft did come up with that are now mostly forgotten or marginal.
Remember Bing? How about MSN? Internet Explorer? Take a look at the Microsoft home page. Every product pitched there, including Office, Windows, its SQL Server, is a refinement of one that first debuted decades ago. Let’s face it, Microsoft is not an innovative company anymore, if it ever was.
Note also that many executives at LinkedIn come from Google, Yahoo! and Microsoft They probably wanted a more entrepreneurial future. Even Apple is having difficulty living up to the outsized genius of its founder, Steve Jobs.
Jeff Weiner: ‘Intense’
I first encountered LinkedIn CEO Jeff Weiner in 2000, when he was
working with Jim Moloshok at Warner Brothers’ fledgling online unit. He later went to Yahoo! when WB’s Terry Semel and his buddy Moloshok took over the reins. I thought at the time that he
was one of the most brilliant guys I’d met in the online space; sort of whip-smart, with the same half-grown beard he still sports. (Did he pioneer that trend?) In 2002, I called him “an
intense young man” who had joined WB in 1994. Now, he’s a very rich man — and doubtless still intense.
“He is one of the smartest guys I ever worked with and could read 10 companies’ quarterly statements and three weeks later recall specific details on anything you might ask him,” Moloshok comments. “Very smart guy. When we were at Warner Bros., he would message me from the office at 9:30 or 10 p.m. saying he just walked out of his office to get something from the soda machine and wanted to know why nobody else was at the office.”
For LinkedIn, this is a remarkable reversal of fortune from March, when Weiner went on Bloomberg TV and had to answer questions about a 43% share price drop after a “disappointing” earnings report, and listen to snarky comments from the likes of TechCrunch about how LinkedIn was a “delivery service for spam.” Weiner had showed his commitment to the company by putting $14 million of his stock award for the year into a pool shared by employees. That move paid off.
Prediction: Much More Consolidation Ahead
LinkedIn rocks, that’s why Microsoft paid over $26 billion for it. Fair enough, but at this point we have to notice that there is a huge consolidation going on in the online media and
advertising space. In our view, everything out there that’s not already part of a big conglomerate is going to be sold — companies like Mode Media, Snapchat, Yahoo! (natch), BuzzFeed,
Twitter.
Here’s an easy prediction: A year from now, all these companies will be sold. Who is going to buy them? Probably Google, Facebook, Microsoft, Verizon, Amazon, Comcast, Apple, CBS, maybe Time Inc. or Hearst. Mix and match these names, and you’ve got the big M&A headlines of the next year.
Why all the consolidation? It’s obvious that big companies generally lose their innovation DNA. When was the last time IBM did anything interesting? But, as long as the cash flow is in the billions, big companies can buy innovation, and they’re doing it.
What does this mean for programmatic advertising? It’s all going to get a lot easier to buy programmatic ads because, as we have been saying in this space, there are going to be fewer and fewer choices ahead. Right now, money talks and you know what walks.
(In the interest of disclosure, I worked for a year or so as a consultant to Corbis Images, then owned by Microsoft founder Bill Gates.)
As to why an already incumbent tech firm didn't think of LinkedIn before LinkedIn did, and why established tech firms don't keep innovating - what else is new? That is just a fact of life in our society. It's behind Schumpeter's "creative destruction of capitalism." It's why Intel's Andy Grove had "only the patanoid survive" as his mantra. Go back further. Guggenheim saw the potential for aluminum when Carnegie and the established steel producers didn't. The city of Rochester NY is a memorial to this aspect of life - Eastman Kodak rose to prominence there and the area thrived with it. Kodak didn't see the value in a paper copier technology, but some managers at a small partner supplier did, and Xerox was founded, then grew in the same city. Xerox would later give up on its Palo Alto Research Center, letting an upstart California company take over its little understood technology. We call that the graphical user interface and the "mouse." We call the company Apple. And don't forget that Microsoft rose because IBM didn't pursue the pc on its own. More examples abound.
How right you are, Henry. Let's think of a few more, like Ted Turner starting CNN when three network news divisions had existed for decades. How about John Malone getting rich as a pole climber out in Denver when existing media companies ignored cable? PBS ignores cable and Discovery Channel eats their lunch. Some crazy Iranian starts ebay? Jeff Bezos starts Amazon and Barnes & Noble plays catchup? One of my favorites is Netflix. It starts with shipping videotapes and DVDs. Then they start an online pipeline deliivered through Roku or Apple TV. Where is Blockbuster? Setting up ridiculous online kiosks in their stores, and worrying about pissing off their store managers. And the history of Microsoft is basically they got one thing right, but that was a pretty good thing that just keeps paying off.
MSFT LinkedIn at 7X REV is quite a stretched Premium for an addressable market to cross sell products like Dynamics, Outlook, Sharepoint, Excel, Word, Skype and whatever else from enterprise.
Here's a novel concept to get customers and keep customers: Make your products better!
Let's start with sometyhing simple like wrap aropund text in an image on Powerpoint.
Yes, Leonard, I should have added that Microsoft will do smart things with LinkedIn. The smartest thing they've done so far is to keep Jeff Weiner on as CEO. But I don't doubt they will integrate it wisely. I don't fault Microsoft on execution, not at all. I once hosted a Forbes seminar pitting Microsoft against Netscape. No contest there. It was a Forbes conference for CIOs at the Breakers in Palm Beach. I asked the CIOs whether they used Netscape or Internet Explorer. I think all of them used Internet Explorer, which was basically a copy of Netscape. So there you go. They didn't innovate, but they won, for a while, and then they lost again, because the Safari and Google browsers are more ubiquitous now. I use Safari...