By Gordon Orr
There may be an even bigger source of value for Microsoft somewhere else in the LinkedIn deal, specifically in LinkedIn China.
Lots has been written about why Microsoft is buying LinkedIn, much of it talking about how LinkedIn can add value to Microsoft Office.
I think that is true, and I am not going to repeat those arguments here. Rather, I am going to argue that there may be an even bigger source of value for Microsoft somewhere else in this deal, specifically in LinkedIn China.
LinkedIn officially came to China in early 2014 and now has around 20 million users there, most of whom either already work for or are interested to work for leading private sector Chinese companies and multinationals, and are solid members of the aspirational middle class.
This already separates LinkedIn from almost every other non-Chinese social media network, who are blocked from operating in China. LinkedIn’s focus on business-related topics and its willingness to abide by China specific constraints (they have been public about their agreement to censor content on LinkedIn China) has allowed them to create a meaningful foundation.
Just looking at the valuations of not just China’s internet giants but also the tier of companies beneath highlights that a $10 billion valuation is given to businesses showing simply the green shoots of success. Becoming the China leader in a sizeable internet based sector can deliver valuations of $50 billion or more. No reason China membership couldn’t rise quickly to 100 million. At the very least Microsoft has bought an option on this kind of upside in China. But in reality there is much more.
It’s hard to describe how fundamental networking is in business in China. This isn’t an Internet thing, it’s always been like this. Being able to connect person A to person B gives status to the connector and creates an obligation on the connected. I know some of this first hand from the volume of outreach in China I receive through LinkedIn seeking my help in connecting people or business opportunities.
LinkedIn China has several advantages as it taps into this fundamental networking need.
[ms-protect-content id=”3162″]First, it has the vast majority of Fortune 500 companies active on its site as recruiters. This is a great attraction for aspirational executives, which in turn makes it more attractive for corporates to be active, and for advertisers who wish to reach this segment of high earners. This is a sector where being a foreign service provider could be seen as an advantage by their target membership. Almost every foreign executive that comes to China will have a LinkedIn profile today, providing a first level of insight about not just who they are but who they are connected to.
Second, its connection-driven approach makes it harder (but still not impossible) to fake qualifications and prior work experience. You are not going to have people in your network who you know did not attend school with you even though they claim they did.
Third, it is just for business and even in China, there are limits to how much sharing with potential employers an aspirational executive may want to offer, a site which focuses primarily on sharing business-related achievements and thoughts has its advantages.
Fourth, it has a suite of proven revenue generating services that can be tailored and scaled in China. Microsoft has decades of experience in China learning how to tailor products to China, and it has some great R&D teams in China that could be deployed to create LinkedIn services.
Fifth, no Chinese competitor has really cracked the online recruitment market, establishing trust with both recruiters and recruitees.
Microsoft can push learning and development programs to the wealthy aspirationals who are seeking networking and job opportunities through LinkedIn. It already has experience in doing so in China with its technology learning programs that hundreds of thousands have taken. Offering vocational learning programs, or even specific material on a specific company that an individual is hoping to join, could be very fast growing sources of revenue.
Going forward, it is easy to see Microsoft quickly adding more social and local value to LinkedIn China. It should be relatively easy for Microsoft to create closed communities with common interests in a specific company, sector, function, or business park.
Knowing how many people at a gathering are in your 1st, 2nd and 3rd level connections and having their LinkedIn image come up on your screen can be useful. And yes, it might eventually even increase the number of people in China willing to buy official copies of Microsoft Office due to the realtime networking updates and interactivity that future versions may offer.
And might there even be a way to integrate Bing to give an alternative to the somewhat discredited Baidu search engine for at least their business networking related searches?
Net net, LinkedIn could become a path for Microsoft to bring more services, solutions and content to the segment of Chinese business professionals most likely to be able to pay for them.
However, I can’t just argue the upside. Few non-Chinese companies have succeeded over time in the Chinese internet space, competition is intense, and regulation can be unpredictable. What could go wrong? From a long list of possible risks, I highlight two:
One or more of Baidu, Alibaba, and Tencent comes after LinkedIn China with a very aggressive “copy and kill” strategy, throwing their billions into delivering a more agile, more mobile friendly, more China specific service.
Microsoft fails to navigate the twists and turns of Chinese government policy on foreign companies providing Internet content smoothly.
But net net, if I was in the market for a full time job (which I am not), I think realising the full potential of the new Microsoft-LinkedIn in China would be a truly exciting opportunity.
Read more of the author’s views on China business on the blog, Gordon’s View
The article was first published on LinkedIn Pulse on Jun 20, 2016
[/ms-protect-content]
About the Author
Gordon Orr is a non executive board member of Swire Pacific, Lenovo and the China Britain Business Council. Gordon is a senior advisor to McKinsey on China related topics. Gordon was responsible for establishing McKinsey’s China practice, with the opening of offices in Shanghai and Beijing in 1993 and 1995, respectively. From 1999 to 2004, he served as managing director of McKinsey’s Greater China offices and subsequently led McKinsey Asia. He has lived in China for two decades.
