With LinkedIn Deal, Microsoft is Bringing In a New Era of Software

With Microsoft set to make the largest acquisition in its history, many are asking what is it about LinkedIn that made it worth the $26.2 billion? That's a hefty price tag, considering LinkedIn had 2015 revenue of $3 billion and a net loss of $166 million.

In my opinion, the marriage of the leading professional social network and the world's largest software company demonstrates that we are decidedly at the start of a new era in software, where proprietary data is king, and will start to come bundled together with software. Moreover, I think we can expect that enterprise software will start to look and behave more like consumer internet services. It will be based upon the ability to harness behavioral data across the large sample of user inputs available in the cloud, and deliver useful and meaningful insight in a way that's never been done before.

Taking a look back, it's safe to say that software has functioned relatively the same for the last 40 years. It's been a place for users to input information for tracking and reporting, and analysis — if any — was limited to one company's user base. Larger relevance or context of this data as part of a larger network of users has been lacking.

Microsoft is about to bring the software industry forward, as it infuses relevance across its range of Office apps and cloud offerings. It will embed "living" profiles drawn from the proprietary professional information of close to half a billion people. Next, Microsoft and their many rivals will battle for the more granular behavioral activities of users and customers in order to better serve them (and of course earn ever higher margins for this "data-infused" software.) This is where "machine learning" will take center stage. As each of our detailed actions is captured in software, analyzed along with hundreds of thousands of others, and provided back to users in the form of recommended next steps, software will no longer be a place to input data, but a place to go for specifically-tailored advice.

We've seen this rise in the consumer realm, where technology companies are fundamentally aggregating and analyzing user behavior, and providing value back to users (and, of course, advertisers.) For example, with wearable tracking devices like FitBit and others, users are able to receive actionable insight about their health and physical performance. Services like Facebook and Amazon are analyzing user flow and behavior to make the product easier to engage with — often in ways that we don't even notice. There are countless other examples that also demonstrate that consumer technology puts behavioral and user data front and center, in a way that I expect we will start to see from the enterprise as the divide between these two segments starts to collapse. Microsoft's latest move shows that we are already heading in that direction.

Some may say that we've been hearing the promise of machine learning and data-driven insights for a decade now, and yet we are waiting to see the real results when it comes to the promise of software. There are two reasons why I believe that we really are on the brink of a massive disruption in technology. First, Google has proven that server technology now has the ability to scale horizontally and bring unfathomable number-crunching power to each of us. Add this power to the structural change in software over the last 15 years, whereSalesforce.com led software into the cloud. Now, data across millions of end users is easily aggregated and analyzed. Taken together, this demonstrates that proven machine learning algorithms have both the horsepower and access to granular datasets that are unprecedented. It was never an issue about machines learning, it was whether machines could ingest and process enough data. Now they can.

The technology world will be watching to see how the Microsoft integration plays out for users. Regardless of its success, the lessons here are plenty. Software without an added layer of data and insights will soon become obsolete.

Commentary by Gordon Ritter, a founder and general partner at Emergence Capital. He led the firm's first investment, in Salesforce.com, in 2003. His firm was also a lead investor in cloud software leaders Box, Yammer, Successfactors and others. In 2008, Gordon invested in industry cloud pioneer Veeva Systems (now a public company) and he is currently Veeva's chairman. Gordon was named multiple times to Forbes' Midas List of the top venture-capital investors.

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