Value of Connections–Is LinkedIn Worth $26 Billion?

Value of ConnectionsFourteen years ago yesterday, I left Starbase Corporation to found MyST Technology Partners, Inc., with fellow ex-Starbase software guy, Bill French. That anniversary, together with yesterday’s announcement that Microsoft intends to acquire LinkedIn for a staggering $26.2 billion in cash, got me thinking about the value of connections. How valuable are my own connections? Could LinkedIn really be worth that much?

Before answering that, allow me a digression into the value of connections in my own career as a software guy.

Value of Connections

SCE, Polytron, Sage, Pansophic

Back in the mid-’80s, my wife, Carol, left AT&T Bell Laboratories to take over as president of my fledgling software version control company, Seidl Computer Engineering, Inc. (SCE). Carol and I knew how to develop a solid software product, but next to nothing about running a business. But we had good connections. My father was director of international marketing for a major pharmaceutical company and taught us the importance of establishing and maintaining connections with people who knew things we did not know. We quickly got involved with Ann Arbor’s New Enterprise Forum, a fantastic local organization dedicated to connecting young entrepreneurs with resources–both people and money–to help build a thriving startup environment in and around Ann Arbor.

SCE entered the software version control market and we found ourselves in competition with industry leading PVCS from Polytron Corporation. We held our own for a while, earning numerous industry awards for technical excellence and even winning an OEM deal with Unisys, but Polytron was clearly winning the sales and marketing war. And when Polytron was acquired by the much larger Sage Software, our initial thoughts were that this was the beginning of the end.

But, to the contrary, it was the beginning of the beginning. And it was an important lesson in the value of connections. While we initially saw Sage+Polytron as a leviathan that would swamp us, the even larger Sage competitor Pansophic Systems, Inc. (PSI) caused us to see things very differently.

PSI was a mainframe software company that focused heavily (though not exclusively) on software version control and configuration management. They saw Sage’s entry into this area, especially in the (then) new local area network space as a competitive threat that demanded a response. But how to respond? Pansophic needed a solid, network-enabled software version control solution of its own. And they needed it quickly. And we had one.

Within months of the Sage+Polytron acquisition, we had signed an acquisition deal with Pansophic.

Genitor, Premia

After spending a few years as consultants for Pansophic (and Computer Associates following their acquisition of Pansophic), Carol and I launched a new software company, Genitor Corporation, a C++ tool company. Leveraging Carol’s connections with Bell Labs (where she worked with the first development teams to use the C++ programming language), we were able to get wonderful focus group feedback as well as early endorsements for our work. When it came time so seek investors for Genitor, connections from the SCE days made it much, much easier. (In fact, one former Pansophic executive approached us offering to invest when he learned–while golfing with a mutual connection–that we had launched a new venture.)

Meanwhile, the principals behind Polytron had moved on to launch a new venture, Premia, to create and market the Codewright programming editor. We decided that we wanted to use CodeWright technology inside Genitor and leveraged our formerly-competitive connections to become OEM partners (and friends) with the very folks with whom we had so vigorously competed just a few years earlier.

A couple of years into the Genitor business, we launched a new product, Genitor Surveyor, focused on code re-engineering and documentation. The folks at Premia decided that would make a nice addition to their CodeWright product line and we entered into another OEM agreement with Premia, this time, for Premia to market our Surveyor under the name Premia DocWright.

The Genitor/Premia relationship developed to the point that we both agreed it made sense for Premia to acquire Genitor and we began working toward that. But, before that happened, I received a call from Doug Root, one of the Premia founders, informing me that they had just agreed to sell Premia to Starbase Corporation.

I was at first quite disappointed. But Doug suggested that this was actually a great opportunity–Premia had sound reasons for wanting to acquire Genitor and Starbase would want to do the same, once they understood the connections. And that is exactly what happened.

Just a few months later, Starbase acquired Genitor Corporation. The value of connections arising from that acquisition (at least from my perspective) is difficult to overstate.

Starbase, MyST

At Starbase, I reported to Alan Kucheck, the VP of Engineering. As Chief Architect of Emerging Technologies, I went to work on challenging and intellectually stimulating information architecture problems that have shaped what I have been doing professionally ever since.

I forged friendships–connections–at Starbase with a number of extremely talented engineers, visionaries, and business people, starting with Stephen Kuhn. At the time, Stephen handled mergers and acquisitions for Starbase and was the primary person with whom Carol and I negotiated the sale of Genitor. Once at Starbase, Stephen and I worked closely together doing due diligence for various other M&A projects, including a tour of Europe looking at topic map technology companies. Fast forward to a few years ago, Stephen co-founded Airex, Inc., where I work today.

Also at Starbase, Bill French (a visionary entrepreneur who also ended up at Starbase through an acquisition) and I headed up a forward-looking enterprise application integration (EAI) architecture project we code named Elmer. When Starbase was in the throws of a less-than-entirely-friendly takeover, Bill and I left to launch a new company, MyST Technology Partners, Inc. MyST was quite successful for several years but took a hit when the real estate market imploded around 2008 (about half of our clients were real estate companies).

When I decided to leave MyST in 2009, I was ready for a new (ad)venture. As a long-time entrepreneur, I set for myself three simple requirements: I was looking for something challenging, fun, and potentially lucrative.  I started by reaching out to friends from Premia, Pansophic, and Starbase, as well as other connections I’d made along the way.

Quest, Dell, Airex

During the next several weeks, I had a bunch of great conversations and seriously considered several opportunities. But in the end, I followed Bill Stow (former Starbase CEO) and Alan Kucheck to Quest Software, where I rolled up my sleeves on an EAI project that felt very much like picking up where Elmer left off. This included working closely with another former-Starbase-software-architect-turned-Quest-colleague, Ron Sauers.

At Starbase, Ron headed up the StarTeam Version Control System API team. Ron is one of the most talented (if not the most talented) software architects I’ve ever met. We had worked together, briefly, at Starbase on the Elmer project and had become friends. I was eager to have the opportunity to work with Ron again at Quest.

Over the course of the next five years, at Quest and then at Dell following Dell’s acquisition of Quest, I’ve had the opportunity to forge connections–and become friends–with a large number of exceptionally talented individuals, too many to name.

Today, as a direct result of the connections I made since the very early days of SCE, I am the Chief Information Architect for an exciting new startup, Airex Inc. Airex was co-founded by Stephen Kuhn, who hired Alan Kucheck as the VP of Engineering. We have pulled together an engineering A-team that includes Ron Sauers, Randy Guck (former Quest Chief Architect) and Chip McVey (senior software engineer from Quest/Dell), and roughly a dozen other hand-picked former Starbase/Quest/Dell engineers.

LinkedIn

Now, all of this brings me back to the question I posed at the outset: Can LinkedIn really be worth more that $26 billion.

My own history (including other details not included above) can be gleaned, to a large extent, from my LinkedIn profile. But I’m just one of over 433 million users on LinkedIn. So, one way to put the LinkedIn purchase price in perspective is to divide it by the number of LinkedIn profiles, which works out to roughly $60 per profile. This is a useful perspective, but it is also very simplistic. Microsoft is not simply purchasing a static snapshot of 433 million user profiles. Rather, it is also acquiring:

  • all future updates to all profiles–both those that exist and those that are yet to exist;
  • all metadata related to those profiles (e.g., how profile are changing, who’s contacting whom, who’s endorsing whom, etc.);
  • all hardware and software infrastructure necessary to maintain those profiles;
  • all the know-how that permitted the collection all those profiles,
  • all of the human resources and organizations of LinkedIn; and
  • all licensing rights related to any/all of the above.

I like to define knowledge as information that increases one’s ability to act wisely. The volume of continuously updated information contained in the LinkedIn platform is enormous. Microsoft must believe it can leverage this information in many, many ways to extract knowledge, allowing it to create value that exceeds the $60 per profile valuation. To me, that seems a very reasonable proposition.


Photo credit: Lachlan Hardy

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