From an article on the recent investment by SAP, McGraw-Hill, and Goldman Sachs into LinkedIn:
The deal, announced Wednesday, adds $22.7 million to LinkedIn’s coffers and affirms the company’s $1 billion valuation that was achieved in a $53 million investment in June led by Bain Capital Ventures. These so-called “follow-on” investments finished the fourth-round funding for a site that has now surpassed 30 million users globally.
“It’s a strategic play for us. It’s not about a need for money,” Patrick Crane, LinkedIn’s vice president of marketing, said in an interview. “We have a strong balance sheet.”
What are the strategic plays on offer? The article provides a hint:
LinkedIn is also branching into research services, contracting with firms to conduct surveys with its members. An executive at Gerson Lehrman Group, a New York-based experts network owned in part by the Menlo Park-based private equity firm Silver Lake, said it is monitoring LinkedIn as a potential rival. But Andrew Goldman, Gerson’s managing director of marketing, said LinkedIn has considerable work ahead to fully compete as an experts’ network.
This seems to confirm our prediction, made in March 2008, that LinkedIn would be entering the expert network business. What the article doesn’t note is that two of the investors involved in this deal have had their own past forays into the expert network business:
- Standard & Poor’s, a McGraw-Hill-owned company, is currently shopping its Vista Research subsidiary to prospective buyers.
- Goldman’s Vantage Marketplace, which has been in operation for less than a year, has failed to gain significant traction
In retrospect, both ventures have failed to dent Gerson Lehrman’s position as the 800-lb gorilla of the expert network space. Various sources suggest that Goldman and S&P/McGraw-Hill are considering strategic alternatives at this point.
A matchup between LinkedIn and Gerson Lehrman might seem, initially, to be overwhelmingly stacked in favor of the latter. Gerson Lehrman has an extensive network, an established client base, well-developed compliance systems and vetting/matching procedures. However, they are not invulnerable. LinkedIn has a userbase of 30 million from which it can recruit experts, and now could have strategic and distribution backing from two corporations that know financial services very well, and a third, SAP, that could represent a valuable liaison to the corporate market:
The alliance with business software giant SAP, Crane said, may help in the development of internal networks for giant corporations: “The main point we hear from the enterprises, many of whom SAP serves, is that they want to work better, faster, easier — to be able to know who knows who and who knows what.”
The biggest point in LinkedIn’s favor may be that it is coming to the business as something of an outsider; they are not rooted in the existing models and usage patterns of the financial services industry. This could give them an innovative advantage over previous entrants into the expert network space. At a minimum, one would guess LinkedIn’s fresh perspective gives them a much higher probability of taking the expert network business in a completely new direction than an internal venture at S&P or Goldman. On the other hand, to have any realistic chance of competing, LinkedIn will have to climb a steep learning curve when it comes to compliance, vetting and matching experts, and selling to financial services clients.
If we were Gerson Lehrman, we wouldn’t be overly worried about this threat, but the situation does bear monitoring.