Microsoft’s acquisition of LinkedIn for more than $26 billion raised a lot of eyebrows for good reason. True, the acquired company is valuable and generating revenue but like most of the social networking space, it is far from healthy and one wonders if Microsoft could have gotten a better deal.
According to a colleague at the Enterprise Irregulars, Ross Mayfield, Ellen Levy reported that the deal can boast a number of superlatives if you look at it right, among them,
The largest sale of a consumer Internet company in history;
The largest sale of an enterprise software/cloud company in history;
The third largest sale of a technology company since 2001; and
The largest acquisition ever made by Microsoft.
With those attributes you might expect that LinkedIn is in a really hot sector and everybody wants to get it at any price. It looks like a regular feeding frenzy. Well, hold on big guy, here are some other numbers to consider.
Facebook announced revenue in Q1 2016 at $5.2 billion and profit of $1.51 billion tripling its year over year comparison according to a BBC News article that you can read here. Good for them.
But now consider Twitter, which according to CNN Money has lost a cool $2 billion since 2011. I wonder if this can be construed as an illegal campaign contribution to The Donald. At any rate, Twitter has never turned a profit. Yikes!
Then there’s LinkedIn. According to a Reuters article from February 4 of this year that you can find here, “LinkedIn Corp forecast first-quarter revenue and profit below Wall Street estimates as growth slows in its ads business and its hiring services face pressure outside North America, dragging its shares down 28 percent after the bell.”
The article goes on to say that, “Online ad revenue growth slowed to 20 percent in the fourth quarter from 56 percent a year earlier as automated ads offered by Alphabet Inc’s Google make its traditional ad displays less attractive to advertisers.” Finally there was this, “Its revenue forecast of about $820 million also missed analysts’ expectations of $866.9 million by a wide margin.”
Suddenly it looks like social media has become a winner take all market accentuated by Metcalf’s Law which states that the value of a network is directly proportional to the number of nodes i.e. users in this case. Why use anything but the biggest network unless it’s specialized as LinkedIn is because of its sales and HR focus.
This is happening despite the high acceptance of social media in everyday life, just ask The Donald. Social has rapidly become the thing everybody loves to use and no one wants to pay for. The advertising business model that most companies rely on doesn’t help.
Advertising has its limitations. There is a huge pool of money available for online ads but huge is not infinite. Just as there is lots of music available, people only want to pay for hits. If you combine Metcalf’s Law, which tends to limit the number of viable networks in this space and add in the reality of the fickle consumer you have an instant recipe for a declining market, which is what we see.
Don’t worry, social media is too important to go away. It’s so important that it has commoditized its market into a virtual singularity. That’s the bad news too. The social market looks like it can support 2 styles; say Facebook’s and Twitter’s. There might be additional vendors in the space for a long time especially if larger companies buy them and they function as loss leaders. That’s ultimately the vision I see for any social company not named Twitter or Facebook.
Microsoft announced the intent to buy LinkedIn for $196 per share today or more than $26 billion. It’s a huge deal and a great payday for the social networking company specializing in making it easier for business people to connect. But why do this deal and why now? This calls for a lot of speculation but perhaps we can make some sense of it.
Like other major software companies including Oracle and Salesforce, Microsoft sees itself as an essential platform for enterprises at all levels. The more functionality it can provide to its users, the easier it will be to keep them at home rather than roaming the Internet looking for something new. In addition, the availability of a familiar face such as LinkedIn has great appeal for many customers.
But also, we may be witnessing the consolidation of the social networking space. Brands like LinkedIn, Twitter, and Facebook, and others such as Plaxo and MySpace, all got started around the same time—about ten years ago. Since then each has found a niche and many rely on an advertising model for revenue and growth.
Those models are limited by network constraints, however. Each might be flexible and have great people working there but as Metcalf’s Law stipulates, the value of a network is directly proportional to the number of nodes on it. In our case nodes can be thought of as people and while we might all have Twitter and Facebook accounts, the number that also have a third network is smaller for the simple reason we can only track so much.
So the advertising potential of networks is similarly limited. There is a large revenue pie for ads on social networks but it isn’t infinite and as is often the case, the early participants like Google continue to capture the lion’s share of revenues. In such a situation, if LinkedIn can be relieved from the need to generate so much ad revenue growth by simply becoming a valuable addition to the overall Microsoft value proposition, so much the better. The situation is similar with other vendors that offer social and collaboration functions as part of their value propositions, like Salesforce and Oracle.
All this is to say that the age of social media is likely entering a mature phase. We can see which ones will be able to have a stand-alone future and which ones won’t. This doesn’t mean social networks and social media are becoming passé—just the opposite. They’ve become so valuable that they are becoming commodities and it’s hard for commodities to reap soaring profit growth (that’s why they’re commodities).
So, good for Microsoft and LinkedIn, I think they are better together and their association seems to signal an inflection point in social networking. The strike price of $196 per share is significantly below last year’s peak of nearly $260 but also significantly above Friday’s close of $131.08, just about right in the middle. Is everybody happy?
I went to Oracle OpenWorld as a guest of Oracle and came away with a variety of observations that I can share. Some of what I saw was under NDA and that will remain undisclosed though I have to tell you that I did not see any labs or next generation products beyond what my colleagues saw at the show. My secret experiences revolved around customer stories. I also went to an America’s Cup qualifying race as a guest and had a great time on San Francisco Bay. The only reason that matters is in case you think I’m cutting Oracle some slack. I won’t do that but I will say that I was treated well all week, thanks to the efforts of Susie Penner, who runs the influencers program and does a bang-up job, and others.
Some of my colleagues were grumbling, and perhaps have done so in print, that they didn’t get enough time with executives — or any at all in many cases (me included) — and that their experience was diminished by the lack of a good séance. I can only observe that with 50,000 or so customers and press in town your executives can only be spread so thin. More importantly, I have always found that when I call up I can speak with the person I need to find plus or minus some obeisance to the gods of Wall Street and the public company’s quiet period. My take on meeting with executives is to make a call when I need information and not to expect so much from a conference like this. To that point we had a good meeting with executives and product managers in May when Oracle held an analyst day.
I must also say though that the company makes an unnecessary distinction (my humble belief) between an analyst and an influencer. Analysts seem to get greater access and are sequestered from the influencers in part because they work for brick and mortar analyst firms while people like me who are analysts, bloggers and occasionally journalists, get lumped into a separate but equal program. But, as I say, I can always pick up the phone.
As a CRM guy, the show was a bit light on information and the impression I have is that Oracle is only two or three years into a transformation that starts at hardware and moves steadily up its stack to applications. The hardware announcements at OpenWorld were superb and I can see a bright future for all of computingdom (a new technical term to be sure and evidence of continuing innovation in Silicon Valley) with Oracle’s devices. But I have been saying this for three years.
Each year the Exa-hardware line (Exadata, Exalogic, Exalytics) gets more robust. This year the company finally aimed Exa-hardware squarely at cloud computing to claim a spot as a serious infrastructure supplier. It also announced a new version of the database (Oracle 12c) for its public/private/hybrid cloud strategy to complete the picture. I am not much of a fan of private clouds because they seem oxymoronic, like jumbo shrimp as Steve Martin used to say. But for many, the idea of a private cloud is what will finally get them to cloud computing and sooner or later true cloud computing will break out as hybrids die a natural death. But also, I see great gains for sustainable computing with these announcements and with them lower operating costs for users.
The private cloud, seen for what it is, is a transition state. Neither fish nor reptile, it is an amphibian capable of adjusting to multiple surroundings and it will be the parent of something better adapted to an energetically more stringent environment. This is the greatest differentiator between Oracle and all of its much further progressed competitors in the cloud in my opinion.
Oracle has hundreds of thousands of customers and most of the biggest companies in the world use its products. It will not turn on a dime and it will need to support its customers and their older products for many years as they transition to cloud computing. So, Oracle’s strategy cannot be the same as a pure SaaS player and I believe the two should not be directly compared without caveat. In fact, I think Oracle’s next big innovation will not be hardware or software related. It will focus on the high-wire act of changing its business model to subscriptions while encouraging its customers to do the same all while running full tilt into the future — just what you’d expect from a company headed by a yachtsman captivated by speed.
I was not impressed by the front office applications and they fell into three buckets – new product acquisitions, existing products i.e. those bought in 2005 and Fusion. The products that Oracle bought last year are all up and running as they were when they were purchased but they are only lightly integrated, I think. The glue that is supposed to hold them together was hardly in evidence. I am talking about Fusion. Whatever Fusion is going to be is still in the future as far as I can see and I can’t say much more than that because I didn’t get to see much. The older applications are quite literally getting older and the race is on between them and the new acquisitions to see if the new apps can spin up quickly enough. Fusion is a very important of that dance.
On the other hand the company has adopted RightNow’s customer experience or CX mantra completely and did a reasonably good job of introducing its customers to those social ideas. Unfortunately for me — and many of my colleagues who have been swimming in the social soup for many years now — Oracle’s CX Summit was aimed at its legion of neophyte customers. There’s nothing wrong with that. It accurately shows where everything and everyone is relative to social. But the net effect of it all is that we didn’t see behind the curtain and didn’t get a glimpse of what’s ahead in social for Oracle.
We did hear about the importance of social networking and collaborating and how Oracle Social Network (OSN) fills a void etc., etc. But I have profound doubts. I consider social as a recently blank canvass, which has been filled by things like Twitter, Facebook, LinkedIn and, yes, Chatter. In each case, creative types tried to paint it with transcendence and visions of what can be. Then consider OSN, a plow horse of a name that says “we checked off another box,” and you get an inkling of where Oracle is in its social rollout.
On applications, my net impression is that Oracle has not yet generated a lot of thought leadership. There are times when thought leadership is not as valuable but we are at a crossroads and the signs point to cloud, social, mobile and all of the above. The Oracle messaging was long on “here are the facts about our new products” but relatively short on the part that says “and here’s why that’s important to you in today’s economy/market place/world” pick one. Oracle wants to be the go-to technology business partner but to achieve that goal in a new generation they need to throw some fastballs down the middle of the plate. Every year I see progress and maybe next year they’ll get the thought leadership. It will be vitally important as the company moves not just into the cloud but more and more into the subscription economy and expects its huge customer base to follow suit.
There’s been a lot of activity on the Web and in our industry in the last week and I thought it might be fun to try and tie at least some of it together. Much of it in one way or another involves Facebook—or FB as the proposed ticker symbol suggests.
Part of an email from John Borkowski of WebiMax reads:
“Kenneth Wisnefski, online marketing expert, and founder / CEO of WebiMax, suggests Facebook will not be worth the investment. “In the first few days of trading, I expect the stock price will soar due to social-media hungry investors,” states Wisnefski. (We saw this with LinkedIn’s IPO). “However, once the market absorbs the emotions and begins to invest based-on fundamentals, it is clear Facebook will not be a solid investment.”
“Wisnefski refers to Facebook’s few revenue streams. Given the fact that 85% of their revenue is dependent on ads, the company is not diversified enough to generate income from additional streams. EMarketer reported that Facebook’s ad sales grew 104% in 2011, but are only expected to climb 58% in 2012, and 21% in 2013. The diminishing growth stems from intense competition from Google and Bing and suggests advertising on Facebook may be – simply put – a fad.
Facebook a fad? You mean like CocaCola and cheeseburgers? I wrote back:
“Thanks for this information. There’s a lot to agree with but I am not sure I agree with your conclusions. In any investment scenario you have to consider the time horizon. FB will be an interesting flip for those lucky enough to buy at the offering price and if history is a guide it will settle down as more value conscious investors refuse to pay the premium and pick it up after it settles.
“Longer term you are right, the company has a structural issue with its markets but the thing your analysis omits is the potential the company has for growing new markets as well as for capturing share of what’s there already. It’s risky in investments to take into account futures that are not even or barely imagined but I suspect that someone buying FB after the hoopla and who holds the stock for a number of years will discover they’ve bought the next Apple and they will be amply rewarded.
Reasonable people can disagree. They should too because I am not licensed to give financial advice—keep that in mind.
Salesforce announced desk.com, a rewrite of Assistly on Force.com, which the company bought in September. Desk.com is Salesforce’s entry into SMB support. It’s quite a trick and I like the idea, especially the innovative pricing model, which is custom tuned to SMBs. For more of my analysis, you can go here.
Then there’s the broader world, there always is.
In Friday’s New York Times (I should say that I will always be a Red Sox fan, but the Times rocks) there was a lead article that brought social media into the public square for the second time in a couple of weeks. The breast cancer advocacy organization (I guess that’s really anti-breast cancer if you want to get technical) Susan G. Komen for the Cure foundation announced it was no longer funding breast exams through Planned Parenthood.
A viral digital uproar ensued.
Apparently the Komen people were getting nervous about being singled out for supporting Planned Parenthood by Republican presidential candidates and their mysterious Super PACs that Mitt Romney seems to think are people too. There’s precedent for this case of jitters. Look what happened to the community-organizing group, Acorn, in the last election when it was linked to that radical socialist Barak Obama.
But four years is a long time in politics and it is practically a geological era in tech. Four years later we have FB, Twitter, LinkedIn as mature products and as I wrote recently, ordinary people are regaining a sense of the commons and commonwealth as a result. The people have their soapbox now. It’s electronic, digital, mobile and global.
And speaking of global, back in the Middle East Iran actually tried to rebrand Arab Spring for its own purposes. In a ham-handed effort reported in the Times, “More than a thousand young activists were flown here earlier this week (at government expense) for a conference on “the Islamic Awakening,” Tehran’s effort to rebrand the popular Arab uprisings of the past year.
Didn’t work. Not even close. Thumbs were typing and unless the clerics in Teheran wise up they could be next.
Finally, by now the Super Bowl is old news but as I write it, everything is in the future. One thing that’s not in the future and which is again brought to us by a combo of social media and YouTube are the Super Bowl ads, which started leaking out weeks ago. Another article from the Times discusses them and more importantly, references many a big agency that brought them to life. It seems you can’t swing a proverbial dead cat without finding some social media expert these days.
Good on them all. What did we do before social media? It’s now embedded in our lives with no sign of going back. It’s certainly made our lives richer and more productive and it’s brought us together on important issues. But now we need to stay vigilant to prevent it from being completely co-opted. The attempt to rebrand Arab Spring might have been ham-handed but it could happen anywhere. And as far as the FB IPO naysayers are concerned, we’ll have to wait and see. But I’ll sleep well.
In addition to knowing about the demographic make up of your community members and making sure they participate in your community not just hang around reading other people’s contributions you need to know something about the demographics of the social sites you want to work with.
I just read an article by Tom Stein about how small companies are giving up on Facebook as a marketing tool because they haven’t seen any returns on their efforts and some of the companies cited had been at it for a year or two. So is Facebook’s time in the sun ending? Maybe, but it will take more than a few anecdotes to make that call.
Consider this. According to a resent survey by Pingdom (www.pingdom.com) concluded that 16 out of 19 (84%) of the most popular social sites have more women populating them than men. The super geek sites Digg, Reddit and Slashdot have more men on them but the more popular sites including Facebook, Linked-in and Twitter all have more women visiting them. The average ratio of all sites surveyed according to Pingdom was 47% male, 53% female.
That’s fine as far as I am concerned because women spend the bulk of family budgets. But this neatly illustrates the flaw in the assumption that social media is a universal good. One of the companies that Stein references as being dissatisfied with Facebook happens to be Blank Label, a company specializing in custom shirts designed and bought over the web.
So, the question that leaps to mind now that we know all this is how many custom shirts does the average woman buy annually? Go ahead, think about it, I can wait. Bingo!
So at least in the case of the shirt maker, the over reliance on Facebook is an example of not understanding the delivery medium. It used to be so easy with print. Magazines publish detailed statistics on readership, subscriptions, demographics and more so that potential advertisers can make educated decisions on their marketing spend. The same kind of information is available from other sources on the web but you’ll need to do some work to find it and maybe collate it.
The point is that social media is just a tool. There are many kinds of social media some tools are great at blasting out messages to friends but other tools focus on collecting information from your community. The focus on inbound data often gets lost with the result that we continue to “spray and pray” using social media as if it were direct mail or email marketing. Social media is powerful and easy to use but we still need to pay attention to how we use it.
The shirt maker might have a friend list of only men but and here’s the difficult part men might not go to Facebook looking for information specific to shirts. The fact that so many women use it suggests to me that men who go there have other things on their minds. So we see that just as in print advertising, lead generation is a fine art partly made up of the offer but much consideration should also go to placement.