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Microsoft buys LinkedIn – harbinger of the dark star?

June 15, 2016

I feel it coming on again. This pressure in my chest. Is it indigestion? Is it the long-awaited heart attack, sent to reward me for all my lifestyle misdeeds? Or is it my inner retired colonel, ready to burst out of my ribcage, its face red with rage, spluttering with fury, spitting viscous obscenities at every target of its wrath?

I fear it’s the colonel again. Not content with pouring venom over the idiots who came up with our infernal EU referendum, and soaking Donald Trump with acid contempt, my very own Disgusted of Tunbridge Wells has new targets.

The victims on this occasion are fortunate shareholders of LinkedIn.

LinkedIn is a social media site for business people. Populated by millions of cheery folk who hope that by posting their life stories on the site, someone will offer them a better job, which, presumably, will lead to a better life.

In the interest of transparency, I should mention that I’m a user, though I’m not sure why. I’m certainly not looking for a better job. Or any job for that matter. Ah yes, I remember. Lots of people on LinkedIn visit this blog, and it’s nice to see my reading stats boosted by referrals from the site. I can’t really think of another reason, apart from a general interest in how people I’ve come across over decades in business are doing, and moments of great hilarity at the way users describe themselves, and the way they choose to project themselves through their photos, which range from the sublime to the ridiculous.

For this – for a site populated by millions of wannabes, headhunters, salespeople and rampant narcissists – Microsoft is prepared to pay $26 billion. Payday at last for the venture capitalists, for the company’s option-laden executives. For what reason is Microsoft prepared to part with a slice of my MS-Office licence fees? For access to the site’s users so that it can sell them things, presumably. Also for the opportunity to charge for stuff beyond the imagination of the current owners. And finally to prove to the world that it’s moving forwards, not backwards. Because there’s no such thing as equilibrium in 2016. Growth is good. In the mind of the market, flat is merely a precursor of decline.

There have been one or two pieces in the media in recent weeks suggesting that the long climb towards new heights of sporting performance is beginning to come to an end. That we are close to the limit of what humans can achieve in a hundred-metre dash, in the long jump or in the pole vault. Are we also close to the limit of what companies can achieve in business? Does Microsoft’s acquisition of LinkedIn herald the impending collapse of Gates’s enterprise under the weight of its own gravity? Likewise, Google, Amazon, Facebook and the other tech giants?

I have no idea, but it does strike me that to pay such an enormous amount of money for a business that relies entirely on its self-populating users for its perceived value is bizarre. For a business, what’s more, that by an astounding coincidence, after fourteen years of burning its investment capital, has only just started to turn a profit. We’re not talking here about a company that make things. You could understand someone wanting to pay a fortune for Tesla, SpaceX or even poor old Nokia. But $26 billion for a database?

And what about the valuations of other self-populating databases? Facebook, Instagram, SnapChat and so forth? Similarly astronomical. This, it seems to me, is speculative heaven – investors playing with funny money in a market full of emperors with no clothes.

Yes, I know, it’s all about the algorithms, those clever bits of software that persuade us suckers to part with our money via advertisements targeted at Steve, Amanda and Ibrahim based upon what the databases know about us. About LinkedIn’s clever exploitation of vanity, greed, exhibitionism, loneliness and unfulfilled ambition. I understand all that. But ultimately, all these sites have to offer is air – to be swept around the globe by every change in climatic conditions. As solid as a puff of smoke from a hedge fund owner’s barbecue.

I get some of the tech giants. Apple – it makes stuff that’s vaguely useful, even if it has spawned a generation of autistic zombies. Microsoft – what would we do without Windows, Office and Skype (one of its more sensible acquisitions)? Amazon – you can buy stuff with consummate ease, even if it is laying waste to the traditional retail industry like a Vogon planet destroyer. They will all turn into dark stars sooner or later, like Nokia, Motorola, and like others teetering on the edge of terminal decline. Not because they’re bad companies, but a because a founder’s vision will only take them so far. Even Google’s supply of creative hydrogen will eventually be exhausted.

But when these shining stars have finally exploded or imploded, their people have deserted them and their market capitalisations withered away, I suspect that another breed of enterprise – the sort that plod along, neither exceeding not disappointing market expectations – will still be around. These will be companies whose outlook goes further than the next quarter’s results, whose executives are neither stars nor miracle workers, just workers.

They will be manufacturers, service providers, undertakers, clothes makers, food retailers, energy producers. Companies that provide things we actually need rather than stuff it would be nice to have. Unsexy but vitally necessary. And I suspect that that the ones which will endure whatever the prevailing economic winds will be those that do not serve as vehicles for speculation on the part of their owners and managers. Companies whose core purpose transcends shareholder value. Whose owners don’t keep an eye constantly open for an exit.

I know only one country where that ethos still prevails – Germany.

Germany is a nation of makers. If you are Greek, you might argue that it’s also a nation of takers by virtue of its economic supremacy. But whence does that supremacy come?

Is it a coincidence that a nation in ruins seventy years ago has never abandoned its roots as a maker of things? And is it also a coincidence that its works councils give ordinary employees a say in the running of its major enterprises? That it leads the world with its apprenticeship schemes and its technical universities? That it’s further than any other nation in its adoption of alternative energy sources?

And is it a coincidence that outside Germany, few people could name the CEOs of its leading businesses? That it’s led by a woman? That it’s avoided involvement in any global conflict since 1945? Goddammit, even its footballers have outperformed all others in international tournaments since the early fifties.

It’s a nation so successful that it’s prepared to open its borders to refugees from the Middle East because it has skills shortages, and is prepared to take the risk of welcoming the new arrivals because it believes it will be in its long-term interest to do so.

And the key is in the last sentence. Long-term thinking.

Germany is no paradise. It has areas of deprivation. It has an extremist fringe. It is a highly conformist society. But it has no Donald Trump, LinkedIn, Wall Street, instant billionaires, property bubbles and arsenals full of nukes. It has learned from its mistakes and has regenerated as an enlightened example to many other countries – the UK and America included – that are destroying their futures through the cowardice, paranoia, opportunism and short-term thinking of their political and business leaders.

I don’t blame the shareholders of LinkedIn for cashing in. Fair play to them. They put money in. They’re getting it out. But I do blame a financial system so puffed up with blind faith in the insubstantial. I also blame the business schools for propagating over decades the notion of the supremacy of the shareholders. And I blame shareholders and executives for thinking that someone else should pay for the social and political stability that allows businesses to flourish while using every method known to their lawyers and accountants to avoid taxation in the countries in which they operate.

And, while we’re at it, I take a dim view of the notion that the CEO of a building company, Persimmon, should take 16% of a £600 million bonus pool awarded to its top 150 managers over the next five years. If this Alexander the Great of the building trade had created the company single-handed, I would understand. But he didn’t.

And if it was perfectly obvious that if he fell under the bus tomorrow there would be nobody remotely qualified to do his job, I would be convinced that he deserved his £100 million. But were that the case, the company’s shares would probably dive on the basis of it not having an effective succession plan.

Ah, but that’s capitalism, I hear you say. Well, I’ve never read Marx, I’ve never read Piketty and I didn’t go to business school. But I have run businesses, and I know enough about what’s going on to recognise that “the system” that has evolved in my country and many others is heading for a fall. It’s so lopsided in favour of a privileged few, so focused on leadership at the expense of employees, and so obsessed with shareholder value to the detriment of the societies that enable it to function that it’s simply unsustainable.

One day, and maybe soon, it will go poof – like a deflated airship. And when we look back as we stumble among the ruins, I won’t be surprised if our historians point to a company called LinkedIn that was sold to Microsoft for $26 billion as an example of the madness that laid us low.

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