LinkedIn Acquires Lynda.com: An Analysis

Earlier this year, we covered Billion Dollar Unicorn company Lynda.com. Carpinteria, California-based Lynda.com is an online learning company that has seen meteoric rise in valuation in the recent past. Last week, they reached their peak when they were bought for $1.5 billion by professional social network, LinkedIn. This was not only the biggest acquisition by LinkedIn so far, but was also the biggest valuation for an ed-tech company. I have long believed that LinkedIn should get into subscription-based ed-tech for the professional education category, and this acquisition makes perfect sense to me. It also reaffirms my belief that LinkedIn is one of the smartest companies around today.

Lynda.com’s Offerings

Since being founded in 1995, Lynda.com has become a leading online learning company that provides more than 5,700 classes and 255,000 video tutorials to individuals to help them improve skills in subjects ranging from business management to software, technology, and even creativity. They provide on-demand video training capabilities to corporates, non-profits, government organizations, schools and colleges so that their employees can improve skills at their own pace and convenience. Their biggest selling feature is their high quality, “Hollywood-style” training videos that are developed in their movie studio production facilities and make the whole online learning experience more enjoyable.

Why the Acquisition?

Analysts estimate the corporate training market to be a $130 billion industry and the content market to be a $20 billion industry. While the acquisition definitely announces LinkedIn’s presence in this space, it has other advantages as well.

The move will not only help LinkedIn improve user engagement and content as professionals will now have access to good educational content, but it will also enable LinkedIn to help professionals improve their skills. Professionals looking to improve skills should now be able to have direct access to Lynda.com’s library of courses. Ultimately, it will help bridge the gap between a job and a candidate as Lynda helps people prepare for the job opportunity and LinkedIn helps professionals identify these opportunities.

As LinkedIn says,

“Now we can help people in a city locate jobs and opportunities, identify their gaps in skills, directly learn those skills through Lynda.com, and compete for and get these new jobs.”

The acquisition will also help LinkedIn up the ante on their student services. In November 2013, LinkedIn began offering access to their site to students who were interested in becoming more informed about universities by sharing campus news and activities, asking questions regarding admissions, and connecting with the campus community and alumni. The University Pages helped students make informed decisions about colleges, courses, and opportunities available to them. The acquisition will complement this access as Lynda is established in over 40% of the country’s colleges and universities.

The Financials

A subscription-based model has helped Lynda earn $150 million in revenues last year and they have been profitable since 1997. Analysts estimate that Lynda is accessed by over 5.4 million users. Now their platform will be available to LinkedIn’s global and growing base of over 347 million members. Subscriptions at Lynda begin at $25 per month for the basic service and go as high as $37.50 per month for access that allows downloadable project files. The move will also help LinkedIn further grow their share of subscription revenue.

Prior to the acquisition, Lynda had raised $289 million in funding from investors including Meritech Capital Partners, Spectrum Equity, Accel Partners, and TPG. Their last round of funding was held in January this year when they raised $186 million at a valuation of $1 billion and now, within a few months, the investors have found an exit at $1.5 billion.

LinkedIn’s Other Acquisitions

Over the last twelve years that LinkedIn has been around, they have made 15 acquisitions to steer growth. Acquisitions like the early ones of recommendation technology provider, MSpoke and hosted search engine engine service IndexTank have helped them improve technology. Then there are several others like Newsle, Careerify, and Refresh that help their users get additional information about job opportunities and their contacts. Their big investments are also directed toward content expansion. They began with the acquisition of SlideShare and have since expanded into publishing with the acquisition of Pulse. However, Lynda has been their biggest acquisition thus far. Lynda’s acquisition not only makes financial sense, but will also help LinkedIn gain significant advantage over others when it comes to meaningful video content.

Is the Ed Tech Sector Now Dead?

The online education industry came into being back in 1998 when players like SkillSoft, DigitalThink, and NetG started to create online learning courses. The industry did not report stellar growth immediately as not only was the market not ready for video-based learning, but the Internet was also not as reliable and pervasive. Today, learning through videos has become more popular and the Internet is ubiquitous. Despite the improvements, most of the older names have either been acquired, or shut shop, and new ones that focus on video-based learning have popped up. Among new players, 2U, Chegg, Pluralsight, and Lynda are the ones to watch out for.

But Lynda’s acquisition may have changed the entire landscape for the industry. Investors at 2U and Chegg had exited last year when the companies went public, though not at such flattering valuations. Today, 2U is trading at close to a billion dollar valuation and Chegg at $690 million. Pluralsight, the EdTech company that focuses on technology courses is yet to find its exit. Pluralsight is trending at $100 million in revenues and is valued at close to $1 billion. I do not think that LinkedIn would be looking to buy another EdTech company at that price tag, and no one else willing or able to invest that much really comes to mind. That would mean that Pluralsight may have to go public to get these valuations to materialize.

As far as smaller and newer EdTech companies aiming professionals are concerned, investors will become very cautious hereon. Competing head-on with LinkedIn is a perilous proposition. Few will have the courage to take that on. This doesn’t mean that innovation cannot happen. It can. But investors will look for true differentiation and competitive advantage. Otherwise, they will pass.

It is a bit of a problem for the EdTech industry, because the only sector of the industry that has showed a clear business model and monetization path is the professional online learning segment. K-12 has been more or less unmonetizable at scale. The MOOCs have flamed out from a business model point of view, although still doing fine as non-profits. So LinkedIn dominating this sector does offer a somewhat grim outlook for the rest of the players.

More investigation and analysis of Unicorn companies can be found in my latest Entrepreneur Journeys book, Billion Dollar Unicorns. Unicorns will also be discussed with some special guests during our 1M/1M Roundtable programs over the next few weeks. To be a part of the conversation, please register here. The term Unicorn was coined in a TechCrunch article by Aileen Lee of Cowboy Ventures.