Barbara Gray, CFA – May 16, 2012

By the “Power of We”, LinkedIn has discovered the Holy Grail of Business Relationship Management: how to transform candidate pools, business prospect leads, and business customer bases from depreciating into appreciating assets.

It is interesting how you can spend so much time working on something – and it is not until the last second that you get a revelation that brings everything together. This is what happened to me. I just finished the final draft of my research report on LinkedIn I had been working on for the past few months and was sharing with my husband, Greg, how LinkedIn’s new Talent Pipeline platform allows companies to keep their applicant data current. I didn’t think much of it until he explained to me that this is one of the biggest challenges facing companies and he actually struggled with this same problem back in the mid-90s when he created Recruitex, one of the first web-based Applicant Tracking Systems (ATS). And the next morning, it dawned on me…LinkedIn has discovered the Holy Grail of Business Relationship Management.

I still remember the email exchange I had back in the Fall of 2007 with one of my institutional clients who was puzzled and suspicious of the mysterious invitation he had just received from me. “What is LinkedIn?” he inquired. I thought about it for a second and responded “LinkedIn is Facebook for Professionals”. I had just joined LinkedIn and was excited about the prospect of being able to create a virtual Rolodex of all my professional contacts. However, back then LinkedIn only had 15 million members, less than a tenth of its current base of over 160 million members and judging by the lack of enthusiasm I received, the finance industry was apparently not an early adopter.

LinkedIn has been an invaluable tool for me over the past four years, allowing me to re-connect and stay in touch on a professional level with former colleagues, clients, classmates, and friends. But it was not until six months ago, when I launched Brady Capital Research and started to try to reach out to professionals on my social capital investment thesis that I began to appreciate the true value of the LinkedIn platform…

I spent countless hours trying to figure out LinkedIn’s cost structure and the company’s revenue drivers so I could model its future free cash flows and come up with a realistic discounted cash flow (DCF) value. However, as the company is already well-covered by the Street (by 21 analysts according to FactSet), I honestly don’t believe I can add any incremental value on the accounting or numbers side of the equation. But where I do believe my research report adds value is on the qualitative strategic side.

In the report, I discuss how LinkedIn empowers professionals to take active control of their careers by enabling them to build bonding, bridging, and linking capital. Guy Champniss’ book “Brand Valued” provided me with insight into these different forms of social capital. Although linking capital is the transaction and value-capture part of the equation that investors care about, I am excited about the potential for LinkedIn’s bridging capital power to create a Medici Effect and spawn a Second Renaissance in intellectual capital.

Just before Christmas, I read Umair Haque’s incredibly thought-provoking book “Betterness” in which he asserts: “destroying the Common Wealth is easy, abundant, and cheap. It is what the vast majority of organizations do. Enhancing it, in contrast, is the scarcest, rarest, and single most disruptive capability an organization can possess.” He then makes the following profound statement: “next-generation advantage isn’t merely competitive; it is generative” which made me start to question many of the principles underlying the traditional view of the economic moat. And it got me thinking about how the Social Revolution will erode the traditional economic moats of companies whose competitive advantage is derived from their ability to exploit their customers, employees, business partners, communities, and the environment. And I realized how it will foster in new generative moats for companies, like LinkedIn, whose business strategy is focused on building higher levels of social capital for their stakeholders.

Back in January, I connected with Rod Beckstrom, who co-wrote the incredibly visionary book “The Starfish and the Spider” in 2006. I shared with him how the insights in his book gave me the conviction back in January 2008 to go against the Street and downgrade Yellow Pages to a SELL, which intrigued him and he invited me to share my story, which appeared in the April issue of “The Beckstrom Starfish Report. I believe the following quote foreshadows how LinkedIn, with its starfish-like DNA, possesses the power to disrupt the business relationship management market: “Spider organizations weave their webs over long periods of time, slowly amassing resources and becoming more centralized. But the starfish can take over an entire industry in the blink of an eye.”

And if you want some great advice on how to take active control of your career, I highly recommend you download or pick up a copy of Reid Hoffman’s recently published professional empowerment manifesto “The Start-Up of You”.

As you know, I started Brady Capital Research so I could focus on companies that are working to make a positive difference in the world that I am passionate about and truly believe in. And LinkedIn is one of those rare companies.

If you would like to receive a copy of my research report titled “LinkedIn: Disrupting By the “Power of We”” please email me at barb@bradycap.com.

Disclosure: I have a LONG position in LinkedIn Corporation (LNKD-NYSE).