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LinkedIn’s IPO – A Perfect Storm of Big Data, Open Source and Cloud Computing

Unless you were at a media-free retreat or preparing for the Rapture that never was, you will have seen the tremendous success of the LinkedIn IPO, pricing at $45 a share and hitting an intraday price of $120 before “settling” down to today’s price of about $95 sporting a $9B+ market cap. To put this in perspective, Mashable points out that LinkedIn is now valued more than some of the following household names:

  • Tiffany & Co.: $8.9 billion, Chipotle: $8.8 billion Electronic Arts: $8 billion, Hyatt Hotels: $7.9 billion, Hertz Global Holdings: $6.7 billion
  • Stunning yet not the first time in stock market history this has occured. The dotcom boom had companies coming to market regularly with billion dollar valuations exceeding those of their “brick and mortar” counterparts. To be fair, LinkedIn isn’t some fly by night website or company that IPOed after 2 years of existence. It was founded in 2003 and has steadily built up a business with real revenues and an established user base that regularly and virally adds new members by “linking in” with others.

    So why the massive valuation and the market enthusiam for LinkedIn’s stock? And what does it mean for the other even more famous bretherin taxi-ing on the IPO runway (Facebook ,Twitter, Zynga)?

    From a technology perspective, LinkedIn is the perfect storm of 3 extremely hot technology trends right now:

    1. Big Data - I’ve written frequently about Big Data and you can explore some of my posts here. Some LinkedIn stats related to Big Data include crunching 120 billion relationships a day, and 16TB of intermediate data for calculations. With Big Data, more “traditional” private software companies that allow insights into Big Data have been snapped up at high valuations (witness high performance analytics companies Vertica, AsterData and Greenplum going for 10 to 15x revenues). With the trend being that the “I” (Information) in IT becoming increasingly more valuable than the “T” it is not surprising that companies like LinkedIn are being afforded extreme valuations based on their Big Data information store. 
    2. Open Source – LinkedIn is a big user of open source technologies, notably Voldemort, LinkedIn’s NoSQL key/value storage engine. Last year at the Hadoop Summit Jay Kreps provided some details around their use of Hadoop and LinkedIn’s infrastructure. The most successful publically traded open source company to date is undoubtedly Red Hat (incidentally which has a market cap of just $8B on $900M+ revenues compared to LinkedIn), but the huge interest in Hadoop and other NoSQL technologies is driving the big boys such as IBM (Investing $100M) and most recently EMC to get a bite of the elephant. Meanwhile the thought leader in Hadoop is still Cloudera, who continues to  gain the respect of the open source community while making strides with their commercial model. DISCLOSURE (RainStor, my current company announced today support for Cloudera’s distribution including Apache Hadoop). Even Yahoo is contemplating spinning out their Hadoop team to tackle an estimated $1B market. 
    3. Cloud Computing – Those who continue to doubt the adoption and the success of the Cloud must at least admit that public companies such as Salesforce.com, Netsuite, Successfactors and even Netflix (with their on demand video distribution gaining massive traction) have been an overwhelming success. Whether you narrow it down to software-as-a-service (SaaS) rather than a more generalized term of Cloud computing, one thing is for sure, people are very much comfortable storing alot of their personal and business data offsite in the Cloud.

    Congrats again to the LinkedIn team for achieving their success to date by deploying new technologies that support their innovative business model. So where do we go from here? All of the companies lining up to IPO have similar technology characteristics highlighted above. Is this the start of another market “bubble”? Or have we peaked with the stock market at current highs and the Bernanke QE2 cruise ship coming into dock? From my perspective (being with RainStor), valuations aside I’m excited to see Big Data and Cloud Computing being afforded such interest, both by enterprises and the financial markets. If the Fed decides to announce QE3 (BIG IF) and Facebook and others hit the markets and skyrocket (as expected), it’s going to be a wild ride.

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