Tuesday, December 11, 2012

Bloomberg/LinkedIn Deal: A Hit or The AOL/TimeWarner of B2B?

Normally I'd advise consumer tech journalists to take a seat rather than to go off analyzing B2B information services, but then  comes up with a pretty good take on Bloomberg's prospective acquisition of LinkedIn. While Bloomberg, LP grew to a multi-billion dollar B2B information empire based on financial and government information markets, LinkedIn has managed to become a going concern with $12 billion in market capitalization, and CNET points out that based on a Merrill Lynch share purchase of Bloomberg in 2008 its market cap is around $22.5 billion. That makes Bloomberg a bigger fish, but not that much bigger.

However, this math can be misleading. Merrill had had an interest in Bloomberg from its founding, and the stock event in 2008 was more a matter of converting that interest into a more fungible form. That doesn't make the market cap estimate wrong, necessarily, but you have to take it with a grain of salt, especially since it's an event from four years ago. The key factor here is cash. As a private and closely held company, Bloomberg LP's cash position is pretty opaque. Based on the history of similar companies like Reuters, they could have a pretty hefty cash mountain that its investors are now trying to figure out how to deploy. 

With that in mind, with its near lock on business information contacts and networking, LinkedIn is the Web's cash cow for B2B networking. B2B networking has formed the core of Bloomberg's value proposition since its inception, albeit with very different technologies and focus. What Bloomberg understands explicitly is that if you own the contact network and the conversation, your information services are built on the strongest anchor possible. LinkedIn is that anchor for the business world at large. So, as it has started to do in government markets,  Bloomberg can use LinkedIn networking as the core of communicating business opportunities with real-time communications and sophisticated analytics on a whole new level.

Yes, there are sure to be cultural differences, but fewer than you may think. LinkedIn is first and foremost a data company - its profiles were the first to provide really detailed, normalized tagging and categorization, the heart of its platform's real power. Its social media elements are powerful, but it's the data structure of LinkedIn that provides its real market differentiation.And LinkedIn figured out that you need a lot of content, especially real-time social content, to make those profiles attractive destinations and to capture information to provide more meaningful matching of services and interests. That's something that would be a huge plus with Bloomberg premium services wrapped around this capability.

But most importantly, if you have a cash mountain to invest in B2B media, there's not really any other company worth purchasing of that scale that would give Bloomberg a brighter future. Most major B2B information companies are slow growth/no growth companies that are challenged to reinvent themselves based on aging business models. Why not invest in information that ties every business sector together and can pave the way for more advanced business information services for specific verticals? Seems reasonable - especially if you can also wrap editorial content form sources like FT around it.

It's hard to say if such a deal will actually come to fruition, and the powerful Bloomberg culture built up around very strong personalities may indeed wind up having a hard time reconciling itself with online business culture and its own strong personalities. You may wind up with a new AOL/Time Warner fiasco, certainly, if that comes to be. But if "synergy" is a misused word in many major mergers, this may be an instance where it makes eminent sense. Both of these companies have mature and vibrant business models, and clear points of intersection where they can leverage off of one another well. If the "people issues" can be managed well, I think that this combo has a far greater chance of long-term success than anything that Dow Jones or Thomson Reuters is cooking up. Let's see what happens. 
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