LinkedIn

Ben and David cover the 3-day-old acquisition of LinkedIn by Microsoft for $26.2 billion. They cover LinkedIn’s founding story by Reid Hoffman, break down their core businesses, analyze recent stock behavior, and speculate on the future of the company inside Microsoft. The big question - were they worth the price tag? Sponsors: Vanta: https://bit.ly/acquiredvantaServiceNow: https://bit.ly/acquiredservicenow26Legora: https://bit.ly/acquiredlegoraStatsig: https://bit.ly/acquiredstatsig26 More Acquired! Get email updates https://www.acquired.fm/email with hints on next episode and follow-ups from recent episodesJoin the Slack http://acquired.fm/slackSubscribe to ACQ2 https://pod.link/acquiredlpMerch Store https://www.acquired.fm/store! © Copyright 2015-2026 ACQ, LLC Items Mentioned On The Show: Adweek: Snapchat Launches a Colossal Expansion of Its Advertising, Ushering in a New Era for the App http://www.adweek.com/news/technology/snapchat-launches-colossal-expansion-its-advertising-ushering-new-era-app-171924The Facebook Effect - David Kirkpatrick http://amzn.to/1tytacTLinkedIn’s Series B pitch deck http://reidhoffman.org/linkedin-pitch-to-greylock/ LinkedIn’s S-1 http://www.sec.gov/Archives/edgar/data/1271024/000119312511016022/ds1.htmMicrosoft and Apple Double Down - Stratechery https://stratechery.com/2016/microsoft-and-apple-double-down/NYT Dealbook on stock based compensation at LinkedIn http://www.nytimes.com/2016/06/14/business/dealbook/linkedin-stock-based-compensation.htmlJosh Elman - When people get confused about “BS metrics” https://medium.com/i-m-h-o/when-people-get-confused-about-bs-metrics-46e4a5f219f#.rdib1blkbFred Wilson: The Dentist Office Software Story http://avc.com/2014/07/the-dentist-office-software-story/The Carve Out: Jeff Bezos at Code 2016 http://www.recode.net/2016/6/1/11826718/jeff-bezos-amazon-full-video-codeElon Musk at Code 2016 http://www.recode.net/2016/6/6/11840936/elon-musk-tesla-spacex-mars-full-video-code

Speaker names marked ? are inferred from speaking time and the show’s known hosts — they are not voice-verified.

• 0:00David Rosenthal?

  You are not yet schooled in the power of network effects, young Gilbert.

• 0:06Speaker 01

  I'll cut that.

• 0:24Speaker 01

  Welcome to episode 14 of Acquired, the podcast where we talk about technology acquisitions that actually went well. I'm Ben Gilbert.

• 0:31David Rosenthal?

  I'm David Rosenthal.

• 0:32Speaker 01

  And we are your hosts. We have a very special episode for you today. I can't really think of a time when I didn't call it a very special episode.

• 0:40David Rosenthal?

  Every episode is special, Ben.

• 0:41Speaker 01

  It's true. This episode is not necessarily about a technology acquisition that actually went well. We have no idea how it went. It is huge and it is recent. Today, we are talking about LinkedIn being acquired by Microsoft two days ago at the time of recording. And super speculative, but I think the whole internet is sort of abuzz with, you know, what's the deal with this acquisition? Why did they do it? You know, what's the future hold? And I think it's going to be super interesting to speculate a little bit and throw out some possible paths and draw some conclusions.

• 1:18David Rosenthal?

  Yeah, we're gonna have some fun with this. We, I don't think we've ever gotten as many requests on Slack and email and other channels for, please talk about LinkedIn. So here we are.

• 1:30Speaker 01

  And in fact, I think this may change the timbre of what this show is about. I think for the, you know, at some point here, we might rename this to just a show about tech acquisitions because we're doing things that didn't go well, things that did go well. Really, anything that's got a good story. So.

• 1:48David Rosenthal?

  We love stories here.

• 1:49Speaker 01

  We do.

• 1:51Ben Gilbert?

  All right, listeners. Now is a great time to tell you about a longtime friend of the show, Vanta. AI has scrambled the whole security picture. It used to be that you proved that you were secure once a year on audit or a static PDF, then everyone would nod and you're done. But in an AI-first world, that doesn't hold up anymore.

• 2:10David Rosenthal?

  Yep. Your risk surface changes every week now. A vendor turns on an AI feature, or someone writes in a new model without telling IT, and your posture is different than it was last week, let alone at your last audit. Vanta's own research found that around 70% of companies have this quote-unquote "shadow AI" running with no security review at all.

• 2:31Ben Gilbert?

  Right. And that's where Vanta comes in. They're the leading agentic trust platform, meaning they've built the thing that closes the gap. And the way that they close that gap is Vanta Agent. Think of it as a GRC engineer, that's Governance, Risk and Compliance, except that it's software and it doesn't sleep. It finds the issues, drafts the fixes, and cuts the time that you'd spend on vendor assessments in half.

• 2:53David Rosenthal?

  In half! Which is exactly why more than 16,000 companies today run on Vanta. Companies like Ramp, Cursor, and Snowflake all stay audit-ready and catch the risks that crop up between audits across every vendor, every AI tool, the whole environment.

• 3:11Ben Gilbert?

  And that's the real value. Trust has to be continuous now, which is why Vanta automates your security, your compliance, and the work to earn and prove trust. We're huge fans of Vanta over here, and literally hundreds of Acquired listeners have become Vanta customers at their companies over the years. So you can get $1,000 off Vanta at vanta.com/acquired. That's V-A-N-T-A dot com slash acquired for $1,000 off, and just tell them that Ben and David sent you.

• 3:39Ben Gilbert?

  A little bit of administrative before we dive in. As usual, I'm going to ask, please review us on iTunes. It makes a huge difference, and it's what makes the show grow and tick. Share it on Twitter, Facebook, or even LinkedIn.

• 3:53Speaker 01

  Please share it on Microsoft LinkedIn whenever you can. For those of you who we get some questions, you know, I don't have, I'm not listening on iTunes or I don't have an Apple device, we're going to post this on Product Hunt. So, search for it on Product Hunt, we would love an upvote there.

• 4:09David Rosenthal?

  Yes, please, thank you as always. And feel free to join the Slack group. It's really, it's really awesome interacting with all you guys. We've got over 100 people now and great discussion going on. So, if you want to, if you want to spend more time with Ben and David, join the Slack group.

• 4:26Speaker 01

  Yeah. We want to do a little bit of follow-up. There's been some news from our last couple of episodes that we think are worth talking about for a minute here. David, you want to talk about Snapchat?

• 4:37David Rosenthal?

  Yeah, we're going to, we're going to add a, sometimes we'll have this, sometimes we won't, but adding a section to the show on follow-ups on previous shows. So, we'll do this quickly. But first, from Snapchat, a big announcement this week as well. Ben Thompson, our favorite, our favorite oracle here on Acquired tweeted that the LinkedIn acquisition and WWDC were the second and third most important announcements of the week. And that Snapchat launching their advertising API was the most important announcement of the week. Well, time will tell on that.

• 5:14Speaker 01

  Yeah, I think all we have right now is a press release to go off of and it'll be super interesting to see how advertisers and brands adopt that.

• 5:20David Rosenthal?

  Yeah. Big, big profile in Adweek though, talking about the launch of this API and profiling the company, worth reading, willing to it in the show notes. And then the second follow-up we wanted to do is actually on instant articles as well. Ben had a fun experience this week.

• 5:38Speaker 01

  Yeah, I don't know, actually not sure if this is an announced product or even maybe just like a relabel of an existing one, but I tapped on what looked like a Facebook instant article this week and it expanded into a native ad unit. And it was something that was a super sleek experience to just, it had my email auto-filled, my phone number auto-filled, and it was a way for me to kind of join a waiting list for an upcoming product. And I think Facebook has always had this direct response capture type ad unit, but it's really interesting to see them potentially expanding that.

• 6:11Speaker 01

  That instant articles or instant ads umbrella to include these other things and having a real sleek experience with it.

• 6:17David Rosenthal?

  Yeah, and it cool with both of these that, you know, the ad products and ad product teams don't get a lot of airtime in tech with companies, but especially, you know, social networks and tech companies, but really cool product innovations on both of these fronts.

• 6:37Speaker 01

  Yeah.

• 6:37David Rosenthal?

  So.

• 6:38Speaker 01

  Yeah, yeah.

• 6:38David Rosenthal?

  Cool. All right. With that.

• 6:40Speaker 01

  Want to dive in?

• 6:40David Rosenthal?

  Let's dive in. Acquisition, history and facts. So LinkedIn, I assume almost everybody listening to this episode is a member of LinkedIn, but let's go back to when it was started.

• 6:51Speaker 01

  If not, I'd like to invite you to join my professional network on LinkedIn.

• 6:56David Rosenthal?

  Spam your address books. We'll get to that. Okay, so LinkedIn, I think, I could be wrong on this, but I think was the very first spin out, not spin out, but progeny of the PayPal mafia.

• 7:12Speaker 01

  2003?

• 7:13David Rosenthal?

  2002. So PayPal was acquired, as we talked about several times ago, was acquired by eBay in July of 2002. And in December, December 14th of 2002, to be exact, less than six months later, several former PayPalers, led by Reid Hoffman, band together and they form a new company and they call it LinkedIn. And they, so they start in December and then they work really quickly and they launched an MVP very quickly, especially, again, this is like pre AWS time. They launched an MVP in May of 2003 and it is a social network

• 7:58David Rosenthal?

  and social networks are hot then.

• 8:02Speaker 01

  Yeah, I think I remember reading The Facebook Effect by David Kirkpatrick and in that book, he kind of talks about that there was a group of people that were in Silicon Valley that were super involved in a lot of tech products and realized that social networking was going to be the next big thing and that, you know, this was totally, it explains their fast time to market because I think that. You know, with Friendster right around then.

• 8:28David Rosenthal?

  Yeah, that's what I was gonna say.

• 8:29Speaker 01

  There's a group of ex-Paypallers and other kind of close people that were like, you know, technology is finally in the right place right now where this is about to be huge and let's, let's get to it.

• 8:37David Rosenthal?

  Yeah, and it's, it's really cool that like, there was this, um, uh, in, in Silicon Valley, this kind of like, uh, swelling of interest and, um, and building of, of social networks. Uh, and you know, Facebook hadn't even been started yet, uh, but Friendster was a super hot company. They'd, uh, they just, they had raised money from, uh, Benchmark and somebody else. I can't remember, but we're darling of Silicon Valley. MySpace was growing quickly.

• 9:08Speaker 01

  And Reid Hoffman and Mark Pincus both put money into Friendster, if I recall.

• 9:14David Rosenthal?

  I think that's right. I think that's right.

• 9:16Speaker 01

  Yeah.

• 9:18David Rosenthal?

  Anyway, so they start, they launch in May of 2003 and, um, they have a really interesting, interesting sort of bootstrapping mechanic for the network, uh, to get, uh, you know, how do you start a, a network from a cold start? And that was the infamous and, uh, product of a lawsuit later on, as, as is a recurring theme on our show, um, the infamous scrape your address book and spam all of your, all of your, everybody in your email address book.

• 9:47Speaker 01

  Yeah, and in a very funny kind of, uh, super foreshadowing or foreshadow-esque way,

• 9:56Speaker 01

  kind of reminds me of Microsoft. I mean, they did this thing that was, um, you know, sort of sneaky and maybe would earn them a lawsuit and they sort of just did it, knowing that the upside from doing this thing, you know, it would, it would, it would be huge and it would be something where they would have to pay the price later. They got sued. I think it was a hundred million dollar suit later on for, for this, but, um, you know, once they had the network, they had that lock-in.

• 10:24David Rosenthal?

  You know, and it's, this is like a total recurring theme in network-driven technology companies, like, you know, doesn't get talked a lot about these days, but it's on the internet, like Airbnb totally did this, you know, off of Craigslist to bootstrap their supply network to start and many, many other. Networks have done the same thing.

• 10:42Speaker 01

  And do you know about Microsoft's like price per core thing? We ever talked about this on the show?

• 10:47David Rosenthal?

  I don't think so.

• 10:47Speaker 01

  Price per CPU. They basically put it when they were originally selling Windows or maybe it was DOS. Real early on, they were, they had it in their sales contracts that they would make money for one copy of Windows per core shipped by someone who entered an agreement with Microsoft to sell Windows at all. So they basically squashed the competition because manufacturers realized, oh, well, I'm paying for a copy of Windows, whether I put it on here or not.

• 11:18David Rosenthal?

  Yeah.

• 11:18Speaker 01

  So I may as well ship Windows. And by the time, you know, they, they got sued for that and, and they, I think actually the, the Justice Department forced them to pull that out of their, their contracts. By the time that came around, they, you know, had already squashed the competition and were totally way out ahead.

• 11:34David Rosenthal?

  It's totally, you know, when you're facing a cold start problem as a network, you know, the chicken and egg problem, like you can't, you do, you gotta have something to, to some unfair advantage to get through it, you know? Doesn't always have to be illegal, but in many cases, it turns out it was. So, uh, late, by late 2003, the network is starting to take off a little bit. It's still really early. They raise a series A from Sequoia, uh, $4.7 million, uh, which was a lot of money back in that day, especially after the internet bubble had burst. And, uh, Mark Kwame joins the board, uh, later when he left, uh, Sequoia. Mike Moritz, uh, takes over and is still to this day, I believe, on the board of LinkedIn.

• 12:19Speaker 01

  And Mark Kwame is now in, in Columbus, Ohio, running Drive Capital.

• 12:24David Rosenthal?

  Exactly. Ben's hometown.

• 12:25Speaker 01

  Columbus, shout out.

• 12:26David Rosenthal?

  Shout out. Um, and, uh, and so things continue to go well. And in 2004, the next year, they raised their series B from Greylock. And super cool about two, I think about two years ago, much like when we talked about with YouTube and through the lawsuit of YouTube, we were able to see Sequoia's investment memo about that. Two years ago, Reid Hoffman open sourced quote unquote, his pitch deck for his Series B Greylock. And it's this great document, we'll link, we'll link to it in the show notes, but he has the whole slightly edited pitch deck that he used for LinkedIn Series B. And then he has commentary on it and, and he's like very self critical, you know, it's like this was,

• 13:10David Rosenthal?

  you know, obviously this worked, but like it made a bunch of mistakes and like, I was really nervous about these things and trying to cover up, like we had no revenue. Everybody was like, the elephant in the room was like, why the heck do you guys not have revenue? And like, I was like really nervous about that. Cool document. So in the pitch deck, you know, he, he kind of, the LinkedIn positions, they position it as like the, the unbiased sort of, you know, ground source of, source of truth about professionals. And talk about how with all the existing ways of finding professionals in the world at that time, like it was mostly kind of directory based and all these incentive problems.

• 13:51David Rosenthal?

  And people were incentivized to make themselves look good or to, you know, be founded, to do sales leads, and there was nothing, you know, and they thought that a network could solve all of these incentive problems and create true, you know, for the first time, true information publicly available on the internet about professionals and where they are and how to find them. And it turns out they were right.

• 14:16David Rosenthal?

  As we talk about this acquisition, you know, LinkedIn has never been primarily an advertising based network, they've, advertising based business, they've had ads as part of their business line, but most of their revenue comes from monetizing recruiters. And so as people have been commenting about this acquisition, you hear lots of talk about like, oh, you know, LinkedIn doesn't have a lot of engaged users and I spend no time on the site and it looks like crap. But you can't really judge this company in the same way that you judge Facebook or Twitter, because it's not how they monetize.

• 14:49Speaker 01

  No, and Josh Elman has a great post that I'll put in the show notes too. Josh is a, he was at LinkedIn, he's been at a bunch of great companies and he's at Greylock now. And he has a great post talking about, you know, you can't look at this like, you know, is You know, are the users of LinkedIn really like X multiple more valuable? They're not that engaged? I mean, at the end of the day, they are able to monetize those users in a very different way because they sell an extremely high value product, which is browse and access to these people.

• 15:23David Rosenthal?

  Yep. And it's interesting, later, we'll get in a minute to LinkedIn's IPO, but actually in the IPO prospectus, they list in the risk factors, quote, "A substantial majority of members do not visit the website on a monthly basis," which is funny when you compare them to, you know, many of the other businesses that we've looked at on this show. But again, it's not, they don't make money when you visit the website. They make money from having your data, up-to-date professional data about you on the system and you being found. So they build these business lines over time, but there are three that LinkedIn has. And the first is what they call talent solutions, and that's about 60% of their revenue. And that is for recruiters.

• 16:08David Rosenthal?

  And it's super, as Ben was talking about, I mean, this is a super expensive product that they sell to recruiters. The full product is $900 a month.

• 16:16Speaker 01

  Yeah.

• 16:17David Rosenthal?

  Per seat.

• 16:18Speaker 01

  And I think that the cheapest way to go to LinkedIn premium is like 600 bucks a year.

• 16:23David Rosenthal?

  It's a hundred dollars a month.

• 16:25Speaker 01

  Wow, 1,200 a year.

• 16:26David Rosenthal?

  Yeah.

• 16:28Speaker 01

  So think about that every time somebody contacts you and has the little yellow in thing there.

• 16:33David Rosenthal?

  But as like, you know, they've completely, they have just knocked it out of the park in executing on this. Like, if you are a recruiter operating in the HR world today, you need to have, you know, LinkedIn Recruiter. Like, it's just, there's, it's like a joke if you don't.

• 16:48Speaker 01

  Right, right. And, you know, like, let's imagine that you're a company and you haven't purchased this for your recruiting department. You're not going to be able to hire any recruiters because they're, you know, they're going to be hamstrung from day one.

• 17:02David Rosenthal?

  Yep.

• 17:02Speaker 01

  So they've created this just incredible expectation in the market that that is a table stakes tool to have.

• 17:07David Rosenthal?

  Table stakes. And they've captured a ton of value in that market. So then the other two business lines they have, they have other, the second one they call marketing solutions and that is primarily ads that they show in various forms on the site, whether it's sponsored in mail or all sorts of things. And then the third one is premium subscriptions. So this is what they've spent a lot of time on over the last few years and that's monetizing, monetizing members of LinkedIn who are not recruiters.

• 17:37Speaker 01

  Oh, so okay, you're separating, so LinkedIn Premium is separate from their recruiting tools?

• 17:42David Rosenthal?

  Yes, and LinkedIn Premium, they're different flavors of it, but gives you access to broaden out beyond your second degree network on LinkedIn. And that's great. Like is, I mean, I use it all the time. And is a, is basically this tool was meant for venture capitalists, I think, and business development folks and sales folks. And, and that's about 20% of their revenue too. So.

• 18:07Speaker 01

  And that's about three billion a year in revenue, I think.

• 18:11David Rosenthal?

  Total?

• 18:12Speaker 01

  Yeah.

• 18:12David Rosenthal?

  Yeah. I think that, I actually did not look that up.

• 18:17Speaker 01

  Yeah, I think that's about right. And, and that's about 106 million users.

• 18:23David Rosenthal?

  106 million active users, just about 400 million registered users on the site.

• 18:29Speaker 01

  Oh, interesting.

• 18:29David Rosenthal?

  Which is very interesting. So, so they continue, they execute super well on, on this as, as a private company. And, and the sort of biggest event that they have before they go public is in 2000, I believe it was 2007. Yep. Reid actually steps aside as CEO and they bring in an outside CEO to be, to run the company. Reid stays at the company day to day, a guy named Dan Nye. So this isn't actually talked about much. He didn't stay very long. He was there less than two years, came from Intuit and then he was at Advent Software. He went on to become CEO of Rocket Lawyer.

• 19:10David Rosenthal?

  And, which reminds me, a total, I found this doing research for the show, an aside, but really kind of hilarious. When they raised their Series C, which they did in, in January of 2007, right before this happens, they, they raised Bessemer LED. But they also had this other firm that I hadn't heard of in there called the European Founders Fund. And I was like, what's the European Founders Fund? And I looked it up and it's the Sambar Brothers.

• 19:39Speaker 01

  Wait, we've talked about them before, right?

• 19:41David Rosenthal?

  These are the guys that run Rocket Internet. Rocket Lawyer made me think of it. In Europe that copycat all the US businesses. And I was like, this is just too funny. The Sambar Brothers had a venture capital firm, I don't know if it still exists, called European Founders Fund. So they're just copying Founders Fund.

• 20:02David Rosenthal?

  Just like they do with many other businesses.

• 20:05David Rosenthal?

  Man, it works for them. So I just saw that and I was like, that is too funny. So Dan doesn't last very long as CEO, but in December of 2008, they bring in Jeff Weiner and he is still today the CEO of LinkedIn. And so

• 20:25Speaker 01

  And even will be inside Microsoft.

• 20:27David Rosenthal?

  Exactly. Yeah. And will remain so within Microsoft. In January of 2011, the company finally files for an IPO. They go public in May of 2011. They price the IPO at $45 a share. It trades up to $94.25 by the end of the first day of trading. And this was like, I remember this was like a watershed moment at the time. They were the first like sort of new wave, you know, internet company, big internet company to go public. After the sort of mid 2000s. And it was shortly thereafter that Facebook went public, that Pandora went public, that Twitter went public.

• 21:12David Rosenthal?

  So this was a, this was a big moment and that everybody kind of realized that these social networks that, you know, were still, you know, people were like, how does Facebook make money? Even though Facebook makes money in a very different fashion from LinkedIn. But when they, when LinkedIn, you know, filed their prospectus for the IPO, people were like, man, this business is going to do like 50 million in EBITDA this year. So it was, it was a big moment.

• 21:36David Rosenthal?

  And so and then the stock continued to do really well for over the five ish years that it was public up into going up into the, you know, two hundreds and above.

• 21:49Speaker 01

  Until what February of this year?

• 21:51David Rosenthal?

  Until until February 5th, 2016, just a few months ago, was on a Friday. Both LinkedIn and Tableau announced fourth quarter 2015 results and and expectations for the year to to Wall Street. And it was like, it was like Black Friday for software companies.

• 22:11Speaker 01

  Yeah. And it actually, it killed the the private company valuation and some of the market cap of of other SaaS companies.

• 22:19David Rosenthal?

  Yeah.

• 22:20Speaker 01

  And it it felt like it was super sensationalized and not well understood by the market.

• 22:27David Rosenthal?

  Yeah.

• 22:27Speaker 01

  Because LinkedIn.

• 22:29David Rosenthal?

  So LinkedIn announced earnings. They actually beat expectations on earnings for the fourth quarter of 2015, but they announced lower than than guidance that was lower than Wall Street expected for 2016. And the stock got hammered. It was down 43.6% in a single day. $10 billion of market cap just wiped out of LinkedIn.

• 22:52Speaker 01

  Yeah, I mean, they basically were signaling that we're hitting the top of our S curve and that you can't count on this continued growth in the future, which had been priced into their stock.

• 23:02David Rosenthal?

  Yeah, yeah.

• 23:03Speaker 01

  And so I think, you know, while that core business was still strong, they they were looking for secondary revenue channels with they they had a display ads business that they had shut down a little bit earlier, at least moved resources away from. And then there was a second product. I don't remember what that was called that that was it was a.

• 23:20David Rosenthal?

  Lead.

• 23:22Speaker 01

  Sales Navigator.

• 23:23David Rosenthal?

  Well, Sales Navigator, they still have I'm working on, but the growth that they they expected huge growth in Sales Navigator, and it's been slower to materialize. We'll get into this.

• 23:34David Rosenthal?

  But you know, at one point LinkedIn had a market cap of over $50 billion. And between that and then following was just a, you know, fell off a cliff in terms of the stock price. On that same day, similar thing happened to Tableau, which is a great software company here in Seattle. And because of those two, those two, those two companies announcing weaker than expected earnings, the whole SaaS sector, public SaaS companies just took a big hit. So like on that, on the same day on Friday, New Relic down 23%, Zendesk down

• 24:16David Rosenthal?

  20%, HubSpot down 20%, Workday down 16%, NetSuite 15%, Click14, Demandware, which ends up getting acquired by Salesforce last week, two weeks ago, is down 13%. Salesforce itself was down 13%. It was just carnage.

• 24:31Speaker 01

  Yeah. Also, nice research.

• 24:35David Rosenthal?

  Thank you, Internet. And so then for the last couple of months, the share price of LinkedIn has crept back up, but nowhere near the highs where it once was. And then two days ago, Monday, in like what was gotta be one of the best kept secrets of major M&A of all time, Microsoft announces that they are acquiring the company for $196 per share.

• 25:05Speaker 01

  Which comes to?

• 25:07David Rosenthal?

  Which comes to $26.2 billion total, which is a lot of money, but half of what LinkedIn was worth, you know, a year ago.

• 25:16Speaker 01

  Yeah, I mean, the thing that I wasn't thinking about in February, when it's like there's two parts to arriving at this conclusion. And I feel like within that first week, I sort of understood like, oh, these companies are sort of undervalued right now because they took this huge hit and, you know, their, their core business remained strong. It was just that a new business that proposed, that promised huge growth didn't quite materialize. Like they're still doing $3 billion in revenue a year. And the thing that didn't occur to me at that time is, okay, these guys are on sale. And that doesn't mean on sale just to go buy the stock. That means like they're massively at a discount for somebody to acquire them. And what you got to start thinking then is who are key acquirers where LinkedIn could be a massive asset

• 26:01Speaker 01

  and amplified by their existing core business.

• 26:03David Rosenthal?

  So, so our job today is to speculate and think about was, was, man, was this good? Was this a good move for, for Microsoft, for LinkedIn, for shareholders? We'll, we'll find out. But I feel like we can't, we can't dive into it just yet without mentioning a super important piece of context here, which is that about a year ago, a little over a year ago, there were tons of rumors swirling in the market that Microsoft was, had made an offer to acquire Salesforce.

• 26:32Speaker 01

  Yeah, and I think, I think it was all but confirmed, like that, that that was actually, you know, came to the 11th hour and then fell through.

• 26:40David Rosenthal?

  So the, the rumors, and these are just rumors, we all know, maybe we could do a show on this at some point, but that would be fun. The rumors were that Microsoft offered somewhere between 50 and 55 billion dollars to acquire Salesforce a little over a year ago, and Salesforce was willing to talk, but they wanted 70. And, and Microsoft walked away from that. So, super important, and that played out in the press over weeks. And that, two things with this, both of this was completely kept quiet.

• 27:11Speaker 01

  Yeah, and the, the LOI, I think, was signed a month ago.

• 27:13David Rosenthal?

  Yeah, yeah. And, and Jeff Weiner, in his memo to LinkedIn employees, mentions that, you know, the senior management team at LinkedIn has had, quote, "months" to digest this, which is pretty amazing. And apparently it all started after, after February 5th.

• 27:28Speaker 01

  Which says to me at Microsoft that not a lot of people knew. I mean, that this was, this was something that was board, Satya, key executives. Actually, a friend of the show, Kurt Del Benny, is very much involved in, in, you know, orchestrating how these two companies will, will come together.

• 27:43David Rosenthal?

  Kurt, who we were lucky enough to have on for our Accomplice and Wonderlist episode, is going to be leading the, the integration for Microsoft.

• 27:52Speaker 01

  Yeah. And actually, the press release talks about how he's going to be doing that with Scott Guthrie, who leads enterprise, which includes both Azure and Dynamics CRM product, and Shilu, which Che's purview is mostly kind of productivity. So the whole Office Suite and Bing. And so I think there's a little bit of clue there as to what they're going to do with it, probably in Office and then some combination of Azure and fueling the Dynamics product.

• 28:19David Rosenthal?

  Yeah.

• 28:20Ben Gilbert?

  All right, listeners. Now is a great time to thank our longtime friend of the show, ServiceNow. If you are running a large enterprise, AI agents are likely spread across every team and deploying them is no longer the hard part.

• 28:34David Rosenthal?

  Yeah. The hard part is knowing what permissions they have, what employees are using them for, or what decisions AI is making. AI security for an enterprise at scale is not a small concern. Like, the risks are real.

• 28:48Ben Gilbert?

  Exactly. And the challenge with AI is governing it, securing it, measuring it, and making sure that it actually delivers value. That is why ServiceNow built the AI Control Tower.

• 28:58David Rosenthal?

  Yep. AI Control Tower gives enterprises a single place to see, manage, govern, and optimize AI across the entire business. And it works with any AI, not just theirs. Every device on your network, every permission across every system, every AI agent, visible and secure in one place.

• 29:15Ben Gilbert?

  And ServiceNow can do this because they've spent more than 20 years building the operational backbone of the enterprise. The workflows, governance, approvals, security controls, and institutional knowledge that power how work actually gets done across IT, HR, customer service, finance, and security.

• 29:31David Rosenthal?

  ServiceNow already runs more than 100 billion workflows annually and trillions of transactions for more than 85% of the Fortune 500. So when companies need a place to govern AI at enterprise scale, they're building on a platform at the center of how their business already operates.

• 29:48Ben Gilbert?

  And in a future that isn't going to be one AI, it's going to be thousands of AI agents working across every function of the company. But the question is, who's managing them all?

• 29:58David Rosenthal?

  So if you're trying to turn AI ambition into real business outcomes and make it work safely, securely, at scale, go check out servicenow.com/acquired and tell them that Ben and David sent you. Well, let's jump into acquisition category because I feel like this will start to unpack this here. What's your early categorization here?

• 30:20Speaker 01

  Yeah, so I mean, I think there's a business line from acquiring the, you know, current revenue stream. But in my mind, you know, you don't buy this product just to cash flow it. Like they're not buying that business line because it's going to pay itself back in, you know, short order. And we feel good about owning this new revenue stream. It's an integration play, so I'm calling this a product acquisition since it's a product that they're going to amplify the current sales of with their own kind of channel and integrations, and then make their own products better and kind of define the future of identity. So I would say it's a product acquisition to be combined with their existing products.

• 31:03David Rosenthal?

  Yeah, I am. I'm going to take a similar route, but I think this is really key. So for me, I said, yes, product acquisition, but it's a product acquisition that at least has the potential, I think, to transform and evolve an entire business line for Microsoft. So clearly, this is, I don't know, but I would imagine this is going to be within Microsoft's Business Process, Productivity and Business Processes segment, which is one of the new segments that Satya streamlined the company into when he took over. And I think, you know, there's so many ways, angles to think about LinkedIn,

• 31:44David Rosenthal?

  but one of them that you have to imagine people at Microsoft are thinking about is as a data set and a data acquisition, and the ability to both operate, continue to operate LinkedIn as the set of products that it is within that segment, but then infuse that data into Office, into Active Directory, into Dynamics, into all of the, you know, the sort of mobile-first, cloud-first, you know, world that Microsoft, you know, lives in now. All of the business tools that they have, you have to imagine is something they're thinking about.

• 32:21Speaker 01

  Yeah, totally. And that's a really good lead in. I sort of have like four buckets of why I think they pulled the trigger on this one. And that first one, you know, you just nailed is integration with Office 365 to extend identity outside the company. In the world of Microsoft of your, they have Active Directory.

• 32:39David Rosenthal?

  Which we might want to say I'm worried about that because I bet a lot of our listeners have no idea what Active Directory is.

• 32:44Speaker 01

  Yeah, great point.

• 32:46Speaker 01

  So basically, Microsoft's lock-in in the enterprise comes from the fact that they own identity and everything that stems from that. So everything works seamlessly with their, you know, or historically works seamlessly across all their products because everything is, you know, plugs into Exchange and uses Active Directory to manage identity. And it's, you know, the rock-solid truth of who you are that everything in the company can plug into.

• 33:12David Rosenthal?

  Yep. So when you, as an employee at a company that uses the Microsoft productivity suite, you know, you sign in to your Microsoft account and then that grants you access to your email, to Office 365, to whatever enterprise app if you use.

• 33:28Speaker 01

  In fact, even Windows.

• 33:29David Rosenthal?

  For the few people out there who use Dynamics, you know, into Dynamics. And even Windows, yep.

• 33:35Speaker 01

  You can think of it as like deeply, deeply integrated, the single sign-on. And the nature of companies has changed and I think that, that, we'll talk about trends in a little bit, but I think that a big tech trend or really a big like world trend that's happened is people move around a lot. I mean, people stay at companies for 18 to 30 months and there's a lot of bouncing around and people collect knowledge from all the different companies they were at and build reputation from all the different companies they were at. And a world that is entirely centered around, you know, who you are at this company is kind of antiquated.

• 34:13David Rosenthal?

  Yeah, this is such a good point.

• 34:15Speaker 01

  Company, the company doesn't own your identity anymore. You own your identity and you lend your skills and reputation to the company while you're there. And some people do that for a really long time, but some people don't. And you have to have a way to be able to access and leverage all that other data.

• 34:28David Rosenthal?

  Yep. And. You know, for Microsoft previously, which is again trying to reinvent everything it's doing, as Kurt talked to us about a few months ago, you know, in this, you know, mobile-first, cloud-first world, like, when the reality is that the majority of employees, at least in fields like tech or finance, you know, aren't staying in the same job for long periods of time anymore. If you, as Microsoft, only have these very siloed views into people and not their holistic view of their skills and their career history and their identity, you know, across jobs, you know, there we go. Hence LinkedIn.

• 35:09Speaker 01

  Yeah. And the parallel, I think I should, that I wrote down anyways, you know, five years ago, 10 years ago, we had this like IT shakeup where they were freaking out about BYOD, bring your own device. And this is the realization of BYOD when it comes to identity.

• 35:26David Rosenthal?

  Yeah. BYOE, bring your own employee. BYOP, your own person. Yeah.

• 35:32Speaker 01

  Yeah. And you mentioned, well, I was gonna go into the sort of second thing, because I think there's a good segue there. The second reason, we kind of talked about identity in Office 365 there. I think that as it extends to dynamic CRM, it's hugely valuable to know an entire person's work history when you are trying to sell something to them. So imagining, you know, that the problem with Microsoft's worldview before is, this is John Smith, and he was at company A. There is also a John Smith at company B. We don't know if those are related. And, you know, I'm sure there's like attempts to make sure they're related, but the magical thing that LinkedIn nailed is all the incentives are

• 36:14Speaker 01

  aligned for them to make money off of you wanting to make all of your information accurate. And so if you can have this like holistic view of identity when it comes to customers, that's incredibly valuable also.

• 36:30David Rosenthal?

  Yep.

• 36:32David Rosenthal?

  I agree and I want to jump into with something I've been thinking about is with regards to this acquisition. And Ben and I were texting about this earlier. The way I think about LinkedIn is like, it's such a canonical example of like the power of a network effect. And the value of the asset of LinkedIn's network that they've built. And I'll get into this in a little bit in tech themes. But if you take for a given for the moment that the the network effect and the defensibility of that means that their professional network that they've built basically can never, almost never be disrupted. And Lord knows, many people have tried over the years, despite the product being really crappy and all these other things. You know, what can you build on top of that?

• 37:17David Rosenthal?

  And we talked about how LinkedIn isn't, doesn't monetize via ads, really. You know, they're sort of like, they did recruiting first. That was the most obvious. They nailed it, like they own that industry. But then it's also really obvious, like they should do like sales and biz dev and partnerships and like, you know, like what I use LinkedIn for and probably many, many of our listeners. And they kind of really dropped the ball there. And then you think about like, man, could Microsoft with the LinkedIn network asset on top of that like, really execute where LinkedIn hasn't? I think there's a big opportunity there.

• 37:53Speaker 01

  Yeah, and Ben Thompson agrees with you. I pulled this quote, it's getting to be not a question of if, but how many times we'll mention Ben's prolific writing on the show. But he has a quote in the Strategery article about this. This is, "I do believe upside is magnified significantly by Microsoft. Should LinkedIn's Sales Navigator, for example, sell into 100% of Microsoft Dynamics CRM user base, a good portion of this deal would be paid for." And that's just really interesting to think about is you raise a good point. The crux of the whole thing is can Microsoft leverage the network asset that LinkedIn has created better than they themselves?

• 38:29David Rosenthal?

  Yeah, and it's worth a word on like, On Sales Navigator. So this is this product that LinkedIn has put a ton of effort into, and this is their attempt to execute and capture this sort of second pillar of value on top of the network with with sales and lead generation. And the problem they've had is that like, sales runs on the CRM. This is why Salesforce is such a valuable company. And unless you're directly plugged into the CRM, like, it's really hard to, you know, add a ton of value. And they've done a lot of integrations and, you know, Sales Navigator has had integration with Salesforce and with all the other CRMs out there. But like, it's really hard to do that.

• 39:11David Rosenthal?

  And and for Microsoft, like, A, they can plug it directly into Dynamics, which has very small market share. But they also have the way and through all the rest of the productivity suite, including email, the most important app for sales and many other, many other, you know, professional functions. And to be able to plug all of LinkedIn's network asset into that, like, huge opportunity.

• 39:35Speaker 01

  Yeah. And for everybody out there that listens to or that works at a company that sells to businesses, Salesforce has become kind of the operating system of the B2B company. And if a product doesn't plug into Salesforce, you're not using it, because that's the central repository for how all the different departments of your company communicate with each other. And it is the ground source of truth. So, I mean, that Microsoft has always been the we power productivity, and we enable enterprises to be the most productive and efficient they can with the use of technology or through the use of technology. And that's been their their mission for a long

• 40:16Speaker 01

  time, or at least one of their missions. And to see Salesforce really like etching away at that. It's almost like to defend that turf, they had to do this.

• 40:26David Rosenthal?

  Yeah, I want to let Ben get to his, his other two points, but I want to add in really quickly. Like, I have to imagine. So what's also really cool about this acquisition is, as is the theme on this show, we'll get to find out all the nitty gritty of how it happened when the SEC filings come out, when the, when the deal closes.

• 40:43Speaker 01

  Which, which they said is, is this year, which likely means late December.

• 40:47David Rosenthal?

  Yep. And I'm really looking forward to that because I have to imagine that if there, there was, there must have been at least one other bidder here, or the price wouldn't have gone this high, if not multiple others, but I got to imagine the other bidder was Salesforce.

• 41:02Speaker 01

  Has to be. And this is, this is awesome. This is leading right into point three for me. Somebody else was going to buy them, like they're on sale. There's only one LinkedIn. Like the magic of network effects makes it so that, you know, they were the source of truth for where an employer has been and what they've done and what they're good at, even though their skills and endorsements thing is a little bit of a joke. They, there was only one. So you couldn't go out and buy the other LinkedIn or build the other LinkedIn. It was like there was this one super valuable asset. And that's sort of an interesting M and A trend because of the, you know, network effects and technology today. It makes them immensely more valuable

• 41:46Speaker 01

  and it creates these, these, there's certainly a bidding war here. So when you're considering the value of this and you're Microsoft and you get approached by the investment banker that sort of put this together and said, hey, what do you think about this?

• 41:59David Rosenthal?

  Which I, I believe was Frank Quatron. Again, we, we'll, we'll fact check this, but.

• 42:06Speaker 01

  Let's see. I know LinkedIn was advised by.

• 42:08David Rosenthal?

  Catalyst, yeah.

• 42:08Speaker 01

  Catalyst, yeah. Cool. And Microsoft by Morgan Stanley. You got to be thinking with the hat not of, boy, is this worth, you know, 25, 26 million dollars, but more with the hat of what is the opportunity cost of it going to someone else? And what's the capital outlay that we need to make in order to not have our lunch eaten? And it. Taking a step back from that, it's sort of interesting, companies, more so these days than ever, have to look at M and A as a competitive threat and have the means, the borrowing means or the cash on hand means to do what they need to to defend their turf against a massive landscape shift like this.

• 42:51David Rosenthal?

  Yeah, I mean, like, let's just take as an example, what if Twitter had acquired Instagram? I mean, I remember when, like, early days of Instagram, like, my primary use case for it was posting pictures to Twitter. So like, you totally could have seen the rationale for that to happen.

• 43:07Speaker 01

  Yeah.

• 43:08David Rosenthal?

  Like, how awful would that be for Facebook right now?

• 43:12Speaker 01

  Yeah, not good. Not good. The other interesting thing that I sort of danced into here a little bit is Microsoft did not pay for this in cash. And we haven't, this is often the case.

• 43:25David Rosenthal?

  Well, they did, but they didn't even.

• 43:27Speaker 01

  So, well, right, right. They did not pay for it in the cash that they carry on their balance sheet. They took out, you know, a large amount of debt because 94% of their assets are held overseas.

• 43:39David Rosenthal?

  Their cash, yeah.

• 43:40Speaker 01

  I'm sorry, their cash is held overseas. And, you know, with the 40-ish percent tax that they would have on bringing that back home.

• 43:48David Rosenthal?

  Repatriating the cash. Yeah, this is a huge problem for all companies that are multinationals and are headquartered in the US, but tech companies especially have a big problem with repatriating their cash. So what they did, this was not a stock deal, it was all cash, consideration that LinkedIn shareholders are receiving, but they, Microsoft took out debt to finance the transaction.

• 44:10Speaker 01

  Yeah, and I think not entirely. They took out, like, it's not, you know, $26 billion of debt, but it was a large part of the financing the transaction. So.

• 44:25Speaker 01

  Yeah, you know, I think that getting back to David's point, it's like there was one single huge asset with network effects here. And the question is, can Microsoft, you know, squeeze more revenue out of it than LinkedIn was doing themselves?

• 44:40David Rosenthal?

  I mean, will they is we will see. Can they? Answer is, in my mind, 100% yes.

• 44:49Speaker 01

  Yeah. Yeah. And then getting into my fourth point, this one's a little bit more broad. But so Microsoft has, you know, admitted that Windows is not the future, that they are not the Windows company going forward. Of course, they, you know, large amount of people working on Windows, huge revenue stream, but it's operating systems are not the solo cash cow that they once were. And I shouldn't even say operating systems. Windows is not. And so in moving to this mobile-first, cloud-first company and focusing on, you know, their cloud offering, as you look up and down the cloud stack, they have infrastructure as a service and platform as a service with Azure. They have software as a service with Office 365. And you could look at this like, okay, they're becoming the cloud services

• 45:33Speaker 01

  company. So business tools for recruiters and more broadly for sales and marketing also is a cloud offering that they can add to that stack of services they provide. And so I think like you put on your old Microsoft hat, you're like, what are they doing? And like, they typically squander large M&As. So this is terrible. It's not going to go well.

• 45:54David Rosenthal?

  We talked to a bunch of current and former Microsoft employees about this. And that is the most common reaction, I would say.

• 46:01Speaker 01

  Yeah, yeah.

• 46:02Ben Gilbert?

  All right, listeners. Now is a great time to talk about a new partner of ours here on Acquired, Logora, the agentic operating system that is redefining how the world's best legal teams work.

• 46:15David Rosenthal?

  Yep, it's sort of obvious that AI is going to completely change the legal industry. I bet most of you listening have dropped a contract into some sort of AI chatbot out there. Legora took that insight and asked the question, what if you really built something with that power from the ground up for the legal industry?

• 46:32Ben Gilbert?

  So the founders did exactly what great founders do, operate with obsessive customer focus. They embedded inside a massive law firm for months. They sat with the lawyers just watching how the work really gets done.

• 46:47David Rosenthal?

  And that's how you get features that customers love, like tabular review, where you drop in a folder of hundreds of contracts and it pulls every key term into a grid a lawyer can actually work with. Legora's bet here is interesting. Since it lets each lawyer handle more complexity, any given person can increase the quality of their work and do higher value work. And this means that the pie can grow even as each individual task takes less time.

• 47:11Ben Gilbert?

  And they recently launched Legora Agent, offering greater intelligence and performance. The agent lets lawyers set an objective, then it can handle the planning and the execution and delivery of the final product. Legal teams get to maintain full control and transparency since they're still involved where judgment is required.

• 47:30David Rosenthal?

  And Legora works where you already work. You can use it within Microsoft Word while redlining or drafting. The early Legora numbers essentially speak for themselves. When they have a head-to-head pilot with their top competitor, they win 70% of the time. Legora now has over 100,000 lawyers on the platform from 1,200 legal teams in 50 countries. And crazily, they went from 1 million to 100 million in ARR in about 18 months.

• 48:00Ben Gilbert?

  Truly insane numbers. And that is the real test. Plenty of things demo well, but the question is whether a busy associate actually reaches for it during crunch time, or whether a partner trusts it before going into a conversation with a major client. If your legal team wants to check it out, whether you're a law firm or you're in-house at a company, you can learn more at legora.com/acquired and just tell them that Ben and David sent you.

• 48:25David Rosenthal?

  So I'm dying to get to tech themes, but before we do, I think it's worth spending a minute on the what would have happened otherwise. We talked a little bit about somebody else buying LinkedIn. I think that's probably most likely. Clearly, they were on sale, as you say, in more ways than one. But I think, you know, the other route is, let's say, LinkedIn and managed to stay independent. You know, they're having a hard road executing on building another pillar of monetization on top of their network asset. But I want to throw in here a bit of discussion that's come out in the press that I think is relevant, that somebody pointed out, and I believe there was a New York

• 49:08David Rosenthal?

  Times article about this. LinkedIn's stock-based compensation has grown hugely in the last few years, and it actually was becoming a real problem for them. So stock-based compensation, as probably many of our readers know, is a main concept in startups, but also in public companies, where part of your equity package as an employee is you get a salary, but then you also get stock options in the company. And LinkedIn had basically, over the last couple of years, been giving away huge amounts of equity to employees, and that dilutes the existing shareholders. So it's a non-cash expense, so it doesn't show up in EBITDA metrics and stuff like that.

• 49:53David Rosenthal?

  But stock-based comp at LinkedIn went from 13 million a quarter in 2012 to 222 million per quarter in the first quarter of 2016. And the problem there is like, if you start doing that and compensating your employees, obviously, I'm a huge believer in employee equity, but you know, the thing about cap tables is like, there's only ever 100%. Like, you can't have more than 100% of the equity in the company. So anytime you give more out, you're diluting everybody. And so it was like the LinkedIn stock had become this sort of like leaky sieve that was happening. So that was a major problem that they would have had to deal with, but now they don't.

• 50:33Speaker 01

  Interesting. Yeah, I think what happened otherwise, I, I, you know, it would have gotten sold to Salesforce. And in that case, I wonder for the future of what Microsoft is doing with Dynamics if they lose out on this deal because I feel like that's a nail in the coffin for Salesforce.

• 50:53David Rosenthal?

  You mean a nail in the coffin for Dynamics?

• 50:55Speaker 01

  I'm sorry, for Dynamics, yeah.

• 50:56David Rosenthal?

  Yeah. All right. Let's go into, let's jump into tech themes because this is, man, I've, I've said this to so many people over the years, you know, that as a investor, I've been such a huge fan of LinkedIn and continue to be.

• 51:12Speaker 01

  David, when did you buy LinkedIn stock?

• 51:14David Rosenthal?

  I bought right after the IPO and then I bought a bunch more after February 5th. And the reason for that is, you know, like we've been discussing, you know, there are major challenges for the business and the company, but to me, there is so few real, true network effects that exist in technology and LinkedIn's is so powerful. I don't believe that anyone, perhaps, you know, ever, ever is a long time, but any time in the foreseeable future will be able to disrupt LinkedIn. Software alone is just software, like it's just a commodity. Somebody will build something better. It will come along, but, and LinkedIn is such the classic example, like it looks

• 51:57David Rosenthal?

  like crap. Like, let's all be honest. Like, the product is really bad at this point.

• 52:01Speaker 01

  Hasn't, yeah, you have like 10 second page load times.

• 52:03David Rosenthal?

  Yeah, it's really, really bad, but like, nobody will ever beat it. Like, I will always use it. I'll use it every day because everybody I need to interact with is on it. And if I leave and go somewhere else, they're not on it, you know, so like.

• 52:15Speaker 01

  Yeah. And the only thing, like, I can envision a future where people chip away in verticals and then those verticals expand, but we're a ways out from that. And the couple of things I'm thinking of are, you know, when recruiting developers, it's very common to start on GitHub.

• 52:31David Rosenthal?

  Exactly.

• 52:32Speaker 01

  And then all of a sudden, there's all this data that is not actually in LinkedIn, that's so much more actionable. And it's like, oh, it's just the, the mirror, you know, breadcrumb trail that they've left from doing their work creates a much richer profile. Or you can imagine sort of the same thing on Angel List, like it. Moves out from founders and VCs to employees and then people are actually incentivized to keep their Angel List profile up to date. That proliferates to other industries.

• 52:59David Rosenthal?

  Designed those company called Behance that Adobe bought that was doing this. Totally agree. If you were going to attack LinkedIn, this is the only way to do it because it's the only way where you can actually get enough critical mass. Like a network is of zero value until it is of critical mass value and then it is of like completely defensible value. But, but it's, I really think it would, it would be a fool's errand to try and build a horizontal wide-based professional network at this point.

• 53:30Speaker 01

  Yeah. I mean, in the same way that it would be foolish to build a horizontal video hosting platform at this point, or a horizontal pure social network. Like I think the era of horizontal platform, horizontal platforms, once they have network effects applied, you don't disrupt them by building another horizontal platform. And I think that, you know, that's, that's, that's just an interesting thing to note when you're thinking about starting new startups. Cause I've heard so many people say LinkedIn sucks. I'm going to try and unseat it and disrupt LinkedIn. And like, yeah, we have our product qualms, but you're not going to do it by creating a better horizontal LinkedIn.

• 54:07David Rosenthal?

  Yep. And, and I think this plays, for me, at one point I want to bring up about the acquisition that plays really strongly in here is LinkedIn, like they're, they're, they're smart guys, right? Like, and gals, like they get this. So what has LinkedIn been more terrified of than anything else in its history? It's people exfiltrating the network, right? Off of LinkedIn and, and stealing it out and bootstrapping it and competing with them.

• 54:34Speaker 01

  And LinkedIn is famously like just iron fisted in their, their terms about, you know, their API limits or your ability to store data that you retrieve from LinkedIn. They, they have the most locked down, quote unquote, open API.

• 54:51David Rosenthal?

  Yeah. The API is a joke. It is an utter joke. And so one of the things that gets me really excited about. LinkedIn being part of Microsoft as a as a as a user, as a user of products and as a, you know, as as as somebody who is has a huge vested interest in innovation in the future is, man, could this mean the dawn of a real LinkedIn API? Because Microsoft has a very different set of motivations than than LinkedIn.

• 55:23Speaker 01

  And so long as they keep the network effect locked.

• 55:25David Rosenthal?

  So long as they keep the network effect, but it'll also be embedded into all of Microsoft's products. Right?

• 55:29Speaker 01

  Right.

• 55:30David Rosenthal?

  And Microsoft is is also a developer facing company. And so like if they open up the LinkedIn API to, I mean, I think about like even like venture capital firms, like so many firms are building data, you know, tools internally for themselves to be able to identify people who might be founders, great founders before they start companies or people who might be interested in joining startups before they do, who are really talented. And you've just been totally hamstrung because you can't really use the LinkedIn API very well. But if now all of a sudden you can like, man, think about all the cool products and services that are going to be enabled enabled by that.

• 56:07Speaker 01

  You can. I'll just caveat this with like, David, remember venture capitalists are a niche market.

• 56:13David Rosenthal?

  Yeah, exactly, exactly.

• 56:16David Rosenthal?

  But there are so many more examples, too.

• 56:19Speaker 01

  Yeah, good point.

• 56:22Speaker 01

  Should we grade it?

• 56:26David Rosenthal?

  Yeah, I think there was one.

• 56:29Speaker 01

  Oh, I have a question I want to pose to you.

• 56:30David Rosenthal?

  Yep.

• 56:32Speaker 01

  So there it is in Microsoft's interest to integrate LinkedIn with all of their products. Keep in mind, Microsoft also owns now the LinkedIn LinkedIn product and has an incentive to make that revenue stream profitable. So do they

• 56:48David Rosenthal?

  Which it is without accounting for a stock based compensation.

• 56:51Speaker 01

  Yep. Or I should say as successful as possible. Do they do a bunch of? Google Apps integrations also. Microsoft starts to encounter or potentially could encounter, well, it'll be interesting to see how they navigate this. The platform versus product tensions where, you know, famously, they didn't want to release Office for iPad because.

• 57:14David Rosenthal?

  As you know all too well.

• 57:16Speaker 01

  Because it competed with the competitive advantage that that Surface had. Or, you know, in a million other ways, you know, Office and Windows always having tension. Do you run into a scenario here or is there a clear, you know, subservient product and leader product where it's? Nope, we're not focused on growing LinkedIn through other people's integrations and that is a sole. You know, source of value for other products at Microsoft.

• 57:42David Rosenthal?

  I mean, I got to imagine I'll be really disappointed in Microsoft and Satya and Kurt and everybody if if. They take the the old school Microsoft approach here. I can't see them doing that.

• 57:56David Rosenthal?

  But I mean, like, you know. This is, this is the whole thing about, you know, Satya's leadership at Microsoft is like. The way that this company becomes relevant again and and.

• 58:09David Rosenthal?

  An innovator again. I mean, some might argue relevant again, like technology moves fast, right? It's like Ferris Bueller, you know, you might miss it if you don't stop and look around every once in a while.

• 58:18Speaker 01

  Mobile.

• 58:19David Rosenthal?

  Mobile, yeah.

• 58:21David Rosenthal?

  But man, like, you know, Office on iPad, like, I want to be everywhere where you are. And like, so if if LinkedIn, all the value that they're going to hopefully go try and create in in. You know, bringing LinkedIn to sales and other verticals isn't on Salesforce too, like, you know, that's a big fail for them.

• 58:38Speaker 01

  Yep.

• 58:40David Rosenthal?

  Okay, conclusion. What do you got, Ben? All right. And so we, how are we going to do this? Like, this is. Are we grading like right now the buy or are we predicting the future and thinking like?

• 58:53Speaker 01

  Yeah, put yourself five years from now, was this a good purchase for this price?

• 58:59David Rosenthal?

  So I mean, I think like today, sitting here, I say this is a great buy because a year ago ish, you know, LinkedIn was worth twice this much. And it's this incredibly unique, incredibly defensible asset that is now part of Microsoft. So I'm like, huge thumbs up. But by that rubric, you know, God, it's really just gonna be like, can they execute on this? You know, the opportunity is massive. But but with great, you know, with great opportunity comes great, you know, there's a lot of complexity here. And it is very difficult to do these things. It's all going to come down to execution.

• 59:37David Rosenthal?

  So right now, I'm going to give it a, I'm going to give it an A minus right now, just accounting for the huge amount of risk to come in the in execution.

• 59:51Speaker 01

  How are we both positive on this? I was gonna give it an A. Like, I woke up Monday morning being like, what? And here I am. All right. But here's, here's, I have some, a couple rationales. But one is, you know, in November of 2015, the stock price was at 255.

• 1:00:06David Rosenthal?

  Okay, so not quite twice as much, but.

• 1:00:08Speaker 01

  Right. And they bought it for, what, 190 ish?

• 1:00:13Speaker 01

  I, you know, I don't think the company is actually worth less. And if you look at it like, it's 25, or what is it? They bought it for 26 billion. And it was, it's a little over 3 billion in revenue. So like an 8x, you know.

• 1:00:29David Rosenthal?

  Yeah, I mean, like, there's a, to acquire a very, you know, a sort of premier internet and SaaS company for 7 to 8x revenue, like, those companies were trading on the public markets at 10 to 15x revenue, like, a year ago, you know, before accounting for any kind of liquidity premium, you know, M and A premium. So like, yeah, great buy.

• 1:00:53Speaker 01

  Yeah. So that's operating under the assumption that LinkedIn continued its trajectory.

• 1:00:59Speaker 01

  You have the the risk that typically comes with a startup acquisition, startup, any M and A thing of integration failing.

• 1:01:08David Rosenthal?

  Can't really consider LinkedIn a startup.

• 1:01:10Speaker 01

  No, of integration failing. And you know, there's, the bigger the acquisition, the farther you can fall. And a $26 billion write down would be truly like a gut punch. And I think.

• 1:01:22Speaker 01

  You know, this kind of comes down to two things. I think they needed to make this acquisition or acquisitions like this because that's their future bet. They're this cloud services company and you know, this is a cloud service that is right in their wheelhouse delivering value to enterprises to make them more productive and efficient and do their best work possible.

• 1:01:46Speaker 01

  The question is, could they, did they need to do large M and A to do it? Like they need a product offering like this for companies. They weren't going to build their own LinkedIn. That was going to fail miserably.

• 1:02:00Speaker 01

  You know, what else could they possibly have done?

• 1:02:04Speaker 01

  I think I do have faith in this new Microsoft, much more so than the Microsoft of old days. That is famous for flubbed, flubbed M and A.

• 1:02:15David Rosenthal?

  Yeah.

• 1:02:16Speaker 01

  And I think when I say old days, I'll just say under Steve Ballmer. And you know, I think with Satie's leadership and the people, I really have a lot of faith in the people leading these integrations. And I think that like, you know, we'll probably end up doing a follow-up episode one way or another, but.

• 1:02:31David Rosenthal?

  Well, and here's, so here's something interesting that we haven't talked about at all on this episode, but I think is really relevant. This is by far the biggest acquisition we have covered on this episode. Like the scale of this, like this, maybe I'm just trying to do some quick math in my head, but like, the value of this acquisition is approaching the combined value of all the other companies we've talked about combined. Maybe slightly less, but it's like on the same, you know, it's in the same ballpark.

• 1:03:00Speaker 01

  We haven't done WhatsApp yet.

• 1:03:00David Rosenthal?

  We haven't done WhatsApp yet. So, you know, is LinkedIn, is Microsoft buying LinkedIn worth, you know, what we got here? Pixar, Instagram, Twitch, Bungie, Siri, Lucasfilm, YouTube, Accomplice, rightly, you know, Virgil, like, whoa, that's a lot of money.

• 1:03:18Speaker 01

  Yeah. I don't think you can really look at it through that lens. You have to look at it like, what was the cost of not doing it?

• 1:03:27David Rosenthal?

  Yep.

• 1:03:30Speaker 01

  And I think you gotta pull the trigger.

• 1:03:33David Rosenthal?

  Yeah, well, hats off for now at least to Microsoft and all our friends over there.

• 1:03:42Speaker 01

  Yeah, and to, and to, you know, folks at LinkedIn. I think the big, the big question will be like, can these cultures mesh? You know, are they gonna, LinkedIn has offices all over the world, but primarily centered in Silicon Valley. Microsoft typically doesn't do well with their Silicon Valley campuses.

• 1:03:57David Rosenthal?

  But as we, as Kurt talked about a few months ago, like, you know, they have a new mindset when it comes to M and A of like, yeah, we don't care where you are. Like, you know, you can be in, you can be in Wonderland, you're in Berlin, you can be at Compli, you can be in Silicon Valley, like, doesn't matter, you know?

• 1:04:12Speaker 01

  Yeah, just a lot of flights.

• 1:04:14David Rosenthal?

  Yep.

• 1:04:14Speaker 01

  Fortunately, they're close.

• 1:04:15David Rosenthal?

  Well, fortunately, you know, Alaska, Bob Bergen, so.

• 1:04:20Speaker 01

  That's a, that's a great place to leave that.

• 1:04:21David Rosenthal?

  That's a great place to leave it. Should we do, do you want to do a quick carve out?

• 1:04:23Speaker 01

  Yeah, yeah. Mine's super quick, because I think a lot of people probably will have seen it already, but Code Conference was last week, and it was bookended by Elon and Jeff Bezos. And I haven't watched the Jeff one yet, but the Elon Musk one is so fantastic. So go watch the Elon Musk interview at the Code Conf. He, he just like, has this incredible way of dancing back and forth between like, total dude in a space suit that is like, talking about the future in a way where you're like, what?

• 1:04:55David Rosenthal?

  Is this where, is this the one where he says, there's like an 80% chance we're living in a computer simulation?

• 1:04:59Speaker 01

  Metaverse, yeah. But then there's other things where like, the way that he explains why the first stage rocket lands on the drone ship, unfortunately it blew up today, but you know, the last four have landed on the drone ship. He, he does a really good job of like, explaining why the drone ship needs to be where it needs to be and position in the ocean. And for anybody that's sort of like into the SpaceX story, understanding any of the physics behind that, super approachable, very interesting, and clearly a visionary.

• 1:05:26David Rosenthal?

  Cool. I am, I am grinning widely here because. Literally no joke was my carve out was the Bezos talk. So this is great because I have not yet watched the Elon talk. So now I gotta watch it and you gotta watch and everybody listening has to watch the Bezos talk. It is fantastic. You know, he, man, that guy is just awesome. But one of my, a couple of quick things that I love from it. You know, one, you know, they ask him like, what, God, there's so much going on at Amazon. Like, how do you think about this? Like, how do you think about your businesses? And he says, I think about innovation. He's like, I like to think about when I'm starting, when we're starting a project or

• 1:06:10David Rosenthal?

  something super ambitious, you know, like Alexa or whatnot, like what about our customers isn't going to change, you know, over in the foreseeable future? Like, you know, so much is changing so fast in technology, but what are the like core things that are not going to change? And also that reminds me of LinkedIn, you know, like I sit here today, like I was a LinkedIn, happy LinkedIn shareholder for a long time because I just sat there and I was like, I'm going to be using LinkedIn 20 years from now. No doubt in my mind, you know? So anyway, there we go. Code Conference, it was good this year.

• 1:06:44Speaker 03

  Awesome.

• 1:06:47David Rosenthal?

  All right, listeners, now is a great time to talk about one of our favorite companies, Statsig.

• 1:06:53Ben Gilbert?

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• 1:07:04David Rosenthal?

  Yep. In the crazy speed of today's AI world, shipping fast is just table stakes now. It's basically trivial to build and deploy your app constantly. The real advantage is how quickly you learn what changes actually created value for customers and how fast you can use that signal to guide what you ship next.

• 1:07:24Ben Gilbert?

  This is where Statsig comes in. It brings experimentation, feature flags, and product analytics into one unified system so teams can ship safely, test rigorously, and directly link what they changed to how users actually behaved.

• 1:07:37David Rosenthal?

  So if you want to make learning your competitive advantage, whether you're building new AI experiences or just evolving your existing core product, go to statsig.com/acquired to get started.

• 1:07:47Speaker 01

  Well, uh, we're leaving ya. Um, I'll say one more time, because I think it's probably more useful at the end of the episode than the beginning. Um, would love it if you could leave us a, uh, review on iTunes. And, uh, if you liked it, share the episode with your friends. See ya.