Jun 16, 2016 ยท 5 minutes

I’ve been too busy at Pandoland interviewing the likes of Margaret Atwood, Max Levchin, Dick Costolo and Jimmy Chamberlin over the last few days to weigh in on the surprise LinkedIn sale to Microsoft for $26.2 billion.

But I am surprised at two of the story lines that have emerged:

  1. That LinkedIn is a failure because it sold… for $26.2 billion.
  2. That this means a sale of Twitter is now imminent.

When I heard the LinkedIn news - like most people-- I said “what?” and then I said “that’s really smart.”

I’m not saying that I necessarily buy all the reasons this is “worth it” for Microsoft. I am definitely not sure it was the best use of that kind of spending power. But nor will the deal tank Microsoft either. At a minimum, LinkedIn offers premium services to professionals and small businesses, which is very in line with Microsoft’s wheelhouse and where it’s going to be focusing going forward.

I meant, it was really smart by LinkedIn. LinkedIn was not going to become a content and ad platform giant, and frankly, the ad business for everyone except Google and Facebook is looking pretty bleak. Online ads are far more concentrated in the hands of a few than offline ads.

And it was clear that Lynda.com and a move into education wasn’t going to move the needle meaningfully. LinkedIn had built something huge and impressive worth tens of billions of dollars. It had a solid core business. It was undoubtedly one of the top three hits of the social media era. But it was in a position where meaningful growth off of that base was going to be a challenge. And we’ve seen that movie over and over again in the consumer Internet.

And, as Andrew Ross Sorkin explained and we’ve written previously, LinkedIn had a sword of Damocles hanging over its head that was going to make things much worse. Amazon and Facebook-- coming from positions of ultimate strength-- were starting to force the industry to report options as real expenses.

From the New York Times:

But there may have been another reason that [Jeff Weiner] left unspoken.

That would be the company’s struggling stock price and its reliance — some might say overreliance — on stock-based compensation.

On one grim day in early February, LinkedIn’s stock price plummeted more than 40 percent after it forecast weaker-than-expected growth for the year. The share price had hovered at $225 at the beginning of 2016; a month later it briefly got close to $100.

The rapid devaluation has posed more than just a problem for investors. LinkedIn’s employees are paid largely in stock, and therein lies the rub: Around the company’s new 26-story skyscraper that opened in downtown San Francisco in March, as well as the corporate headquarters in Mountain View, Calif., there have been persistent whispers about whether LinkedIn could retain its top talent as the marketplace clobbered their incomes.

Among Silicon Valley companies, “LinkedIn is among the most aggressive in using share-based compensation — there is no question about that,” Mark Mahaney, a veteran technology analyst at RBC Capital Markets, said in an interview on Monday. “If the stock had stayed down, it would have seen employee churn.” 

As Yahoo and Twitter have learned, when you get to be the size of LinkedIn, there are only so many escape pods you’ll fit into. Only so many companies can do one acquisition north of $10 billion and even companies the size of Microsoft would struggle to do more than one in a year. LinkedIn grabbed a lifeboat fast.

It’s what Yahoo should have done back in 2008.

I’ve written before that Facebook’s Mark Zuckerberg learned from Yahoo’s aborted attempt to buy them for $1 billion that you don’t pinch pennies when it comes to taking out a surging next generation player. Seemingly crazy bets on Instagram and WhatsApp have put Facebook in the strongest market position of anyone going into the larger-than-social-media messaging wars.

That was a lesson from the companies Yahoo didn’t buy. LinkedIn’s sale shows the lesson in Yahoo’s failure to sell itself at the right moment.

But does this mean a similar purchase of Twitter is imminent? I don’t see what the two have to do with one another. While LinkedIn had a rocky start to 2016 and the challenge of the stock option change looming in its future, its troubles were just beginning. Twitter’s troubles have been accelerating for close to 18 months, nothing Jack Dorsey seems to try is working, and a Vanity Fair article just laid out that there’s no Plan B.

Twitter is like a falling knife. LinkedIn could have become one in another year or so, in a hostile stock market. That’s a very different position to sell from.

As I’ve said since Dorsey took over, Twitter has a harder position than LinkedIn because it’s still too expensive at some $10 billion for a business that will not grow as audience is moving from social media to messaging. Anyone who wants to own Twitter can just wait. Because the price is likely to fall further. Only then the business may have eroded more, so will it still be too expensive at the new price?

Meantime, Snapchat is upping its revenue push, and Facebook is reengineering its core desktop app to be much more Twitter-like with public profiles, instant sharing of timeline items, and other “real time conversational” features.

LinkedIn simply didn’t have pressures like that.

It’s possible that a Twitter sale is in the offing. They’d be crazy not to be trying and crazy not to try to seize on the narrative that this is the moment of social media consolidation. But if Twitter sells, it was going to happen anyway. It has little to do with LinkedIn.