Virtual Scale Conquers, Value Yet To Be Determined

Michael Hedges December 5, 2016 Follow on Twitter

Social media portals have always been about ambition, usually the dreams of founders and investors. But products and services become defined by their customers, none more in the digital age than social media. Companies responding best to this engagement become branding legends. Reading customers takes a good algorithm these days. Turning that into a successful business takes a bit more.

French professional social media portal Viadeo placed itself in the care of the Paris commercial court this past week, a precursor to bankruptcy. The move routes every financial claim directly to the court while the company “continues the process of transferring assets of the company,” reported Les Echos (December 1). There is a three-month window to find a buyer before liquidation becomes a reality. Two potential buyers were named, both in the classified ad business, Le Bon Coin and Le Figaro Classifieds.

Viadeo came to be in 2004 and shot through two rounds of venture financing. It charged forward with acquisitions in China, Spain, India and Canada, a focus on emerging markets noted. Partnerships were developed with Google, IBM and Microsoft. The user (member) count hit 50 million in 2013 and 65 million a year later. It was seen as a major competitor to LinkedIn, founded in 2002 just up the road from Google in Silicon Valley.

Then Viadeo’s IPO in 2014 was disappointing, raising €22 million, largely ignored by big investors. Two days before the IPO LinkedIn announced it had as many users in France as Viadeo. On entry to Euronext public trading the share price was €17.10. When the company suspended trading it was less than €1. “At the moment it seems improbable that we shall secure new financing sources and we are looking for alternative solutions,” said the company statement, quoted by Reuters (November 10). “Current shareholders must consider Viadeo shares to have no value.” It is possible the court could approve a buyer by the end of December.

This next week (December 6) the European Commission is due to report back officially on Microsoft’s acquisition of LinkedIn. Microsoft lawyers have long expensive experience negotiating with DG Competition lawyers. The prize is LinkedIn’s database of 467 million worldwide users (Q3 2016).

LinkedIn and Microsoft agreed to a US$26.2 billion (€23.3 billion) price-tag last June. Microsoft’s argument to competition authorities is LinkedIn is not really a competitor for others in that professional social media category - keeping in touch with other professionals and job searching, like Viadeo and German portal XING - but, rather, social media behemoth Facebook. Microsoft has offered, according to the Wall Street Journal (December 1), to unbundle LinkedIn from its hardware and allow other professional social media portals into Outlook.

A serious part of Microsoft’s profit comes from licensing its software to organizations, attaching LinkedIn is particularly attractive, as was the addition of Skype. The future, however, is in various cloud computing platforms - where everything is, well, virtual - and there Microsoft competes with Amazon for the infrastructure cloud business, the fastest growing segment. LinkedIn adds to the enterprise cloud segment. Leading the huge and growing customer relationship management (CRM) segment, moving quickly to the cloud, is Salesforce, which bid for LinkedIn. Competition authorities in the US, South Africa, Brazil and Canada have already approved.

All of that virtue did not impress fearsome Russian regulator of everything Roskomnadzor, which locked out LinkedIn for, arguably, failing to comply with rules requiring Russian user data to be held on servers located in the Russian Federation, reported TechCrunch (November 17). Big global media tech outfits don’t particularly like that idea because the prying eyes of certain spies could be bad for business. In Russia Google “has taken steps to comply” but Facebook and Twitter are, so far, tardy. Before the lockout LinkedIn reported 6 million Russian users. LinkedIn complied immediately with similar data holding rules on entering China two years ago.

Viadeo exited China a year ago, to focus on France and francophone lands. It closed its California data center and headed for the cloud. It had acquired Chinese professional social media portal tianji.com in 2008, promptly shutting it down.

Facebook, of course, jumped at the chance to get into the job search realm, “experimenting” with job listings on Profile pages in the last month. With nearly 2 billion users worldwide Facebook could bond job offers and seekers “drawing people who didn’t even realize they were interested,” suggested TechCrunch (November 7). Vetting all those offers and seekers, of course, is not Facebook’s problem. Hitting the Apply Now button adds data from the always accurate Facebook profile.

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