Remember the New Economy and the tech bubble of the late 1990s? It seems to have returned, although in a different form. This time around, we are witnesses to the long wake of a Web 2.0 economy: massive initial public offerings (IPOs) for what are essentially micro-marketing portals like Facebook and a host of others that are coming to the forefront of a new kind of cybereconomy. Whereas Web 1.0 promised that sites like Pets.com would be worth their stock value because of their product, the new tech bubble seeks to monetize social networks. LinkedIn is a case in point.
After posting a much ballyhooed IPO last month at $45 a share, LinkedIn has come a long way. Reid Hoffman fired up the idea for what has become a burgeoning peer-network of professionals in 2002 and officially came online in May 2003, according to the official website. The company also estimates that 100 million people use the portal worldwide in order to connect and build their career horizons. All presumptions aside and contrary to appearances, is this item actually evidence of a new tech bubble? Business Insider writer Henry Blodget did not seem to think so.
Blodget tried to puncture the bubble-thought by posing the hypothesis that dozens of such companies would have to go public at even higher valuations for a new bubble to be a reality. However, big financial firms appear to be latching onto these kinds of ventures. When Facebook posted its IPO a few months ago, one of the most visible players that swept in to buy up sheafs of shares was global giant Goldman Sachs.
And now, with LinkedIn on the stock exchange, who has become its white knight? Morgan Stanley.
Notwithstanding the fact that other big names like Amazon, Palm, Twitter and American Express are listed among its 23 corporate partners, Morgan Stanley now owns 23 percent of LinkedIn’s Class A shares, which certainly does not give the firm any control valve over the company but does translate into significant leverage. So did Goldman’s astronomical $450 million investment in Mark Zuckerberg’s multi-billion-dollar-valued creation, which has utterly transformed how the Web economy operates. Morgan Stanley is classified as a heavy hitter, according to the Center for Responsive Politics, whose website opensecrets.org tabulates all of the donations and expenditures that lobbyists dole out to politicians.
As the largest single owner of LinkedIn stock, their figures reveal that they are a very shrewd player, splitting its donations between both parties, albeit somewhat unevenly with a noticeable GOP-leaning. OpenSecrets lists former Republican senatorial candidte Carly Fiorina and elected Senator Kirsten Gillibrand (D-NY) as the two “top recipients” of money from Morgan Stanley employees, $62,050 and $50,650 rspectively.
Incidentally, ideological opposites Rep. Michele Bachmann (R-MN) and Rep. Barney Frank (D-MA) each received the same amount from Morgan Stanley for their campaigns: a relatively scant $3,500. In other words, the firm plays for both teams much like Goldman Sachs. Is it therefore much of a surprise that they also took no time to jump on the LinkedIn bandwagon, or rather, bandwidth?
On December 15, 2009, the research arm of Morgan Stanley released an internal report titled “The Mobile Internet Report.” On page 204 of the public report, the authors describe LinkedIn as “successfully monetizing its network.” According to Reid Hoffman, they write that it “has been profitable for several years.” Morgan Stanley estimates approximately 50 million people use the service. On the next page, a slide reads, “Social Networks Can Drive Substantial Ad Revenue.”
Apparentally, their jump on LinkedIn’s IPO was planned in advance. Strategically that makes sense. What is the long-term benefit in making impulsive investments? The firm saw where the winds were blowing and then made the choice to get swept up in them. LinkedIn, however big it really is, will ultimately become another piece of an emerging chain of Web 2.0 economies that analysts and laypeople are still trying to link together.Powered by Sidelines