LinkedIn sues anonymous data scrapers

LinkedIn is trying to lock down its exclusive relationship with its users.

The professional networking company filed suit against 100 unnamed individuals last week for using bots to harvest user profiles from its website. The lawsuit is a preliminary step to revealing the identities of the scrapers — LinkedIn intends to ask the court to reveal the true identities behind the scrapers’ IP addresses — and a way to maintain its exclusive hold on users’ resumes.

But LinkedIn’s lawsuit also raises questions about how to police bot use. The company, which was recently snapped up by Microsoft for $26.2 billion, has invoked the controversial Computer Fraud and Abuse Act (CFAA) in its suit against the unidentified scrapers, claiming that collecting user profiles from the site amounts to hacking.

“During periods of time since December 2015, and to this day, unknown persons and/or entities employing various automated software programs (often referred to as ‘bots’) have extracted and copied data from many LinkedIn pages,” the lawsuit claims. “To access this information on LinkedIn’s site, the Doe Defendants circumvented several technical barriers employed by LinkedIn that prevent mass automated scraping, and have knowingly and intentionally violated various access and use restrictions in LinkedIn’s User Agreement, which they agreed to abide by in registering LinkedIn member accounts. In so doing, they have violated an array of federal and state laws, including the Computer Fraud and Abuse Act.”

The CFAA allows companies like LinkedIn to bring cases against anyone who gains “unauthorized access” to a “protected computer.” The law has been criticized for essentially criminalizing Terms of Service violations, and Representative Zoe Lofgren and other lawmakers have pushed unsuccessfully for CFAA reform.

LinkedIn’s case accuses the anonymous scrapers of building a massive botnet and circumventing the restrictions LinkedIn uses to prevent profile collection by undesirable third parties.

The lawsuit details several of LinkedIn’s automated tools that prevent data harvesting. Dubbed FUSE, Quicksand and Sentinel, these tools monitor the web traffic of LinkedIn users and limit how many other profiles a user can view, and how quickly a user can view those profiles. This tracking is intended to prevent scrapers from signing up for fake LinkedIn profiles and then vacuuming up vast amounts of data. The company also uses a tool called Org Block to block IP addresses it suspects of scraping and uses Member and Guest Request Scoring to track page requests.

But paradoxically, LinkedIn doesn’t want to prohibit scraping altogether. Search engines like Google use bots to index websites and turn up relevant results — and LinkedIn wants to allow this type of scraping to occur.

“LinkedIn ‘whitelists’ a number of popular and reputable service providers, search engines, and other platforms so as to permit them to query and index the LinkedIn website, without being subject to all of LinkedIn’s security measures,” the company explains in its suit. The scrapers targeted in the lawsuit circumvented LinkedIn’s bot-blocking tools by sending their requests through one of these ‘whitelisted’ entities, a third-party cloud service provider.

A LinkedIn representative declined to comment on how the company differentiates between good and bad scraping, referring TechCrunch to the complaint, which does not discuss how the company makes that determination.

It’s also not clear what kind of behavior LinkedIn is trying to prevent, since the lawsuit doesn’t specify what the scraped data is being used for. Does LinkedIn want to squash a competitor? Or is it targeting a research project like ICWATCH, which archives the resumes of individuals in the intelligence community?

LinkedIn likely defines ‘bad’ scraping based on the scrapers’ effort to circumvent the company’s preventative measures. While it gives special access to search engines and other friendly bots, LinkedIn obviously didn’t give permission to the data harvesters it’s suing.

Similar CFAA lawsuits, like Craigslist’s against 3Taps and Facebook’s against Power Ventures, have been favorable to the plaintiffs, so LinkedIn has a good shot at shutting down its scrapers. Twitch filed a comparable CFAA lawsuit against view-bots earlier this summer, in which the live stream site alleged that using bots to inflate a channel’s view count amounts to an unauthorized access of Twitch’s ‘protected computers.’ However, Twitch’s complaint also claims a number of other violations, including trademark infringement.

Clearly, companies are interested in stamping out certain kinds of bots. But other scraping, like that done by search engines and web archiving services like the Wayback Machine, is welcomed. That dichotomy could create an anti-competitive business atmosphere, the Electronic Frontier Foundation argues.

“If you make it illegal for bots to access websites, you’ve given existing search engines a monopoly,” EFF staff attorney Nate Cardozo told TechCrunch. “Google and Bing got started by crawling the entire web. That’s essentially what LinkedIn is talking about here. To call scraping a CFAA violation is extremely anti-competitive. Using the CFAA to stifle innovation is certainly not what it was intended for.”

But LinkedIn says that fighting some bots and allowing others is essential to protecting its members. The case is scheduled to be heard in U.S. District Court in San Jose.

Stop listening to your bankers and go public, says top late-stage team

Technology Crossover Ventures has become a major investing powerhouse over its 22-year-old history by funding relatively undiscovered but mature companies; buying sizable stakes in later-stage, venture backed companies; and acquiring positions in publicly traded tech companies that TCV sees as undervalued.

The firm, which is headquartered in Palo Alto, has done so well that it just wrapped up its ninth fund with a cool $2.5 billion. It also now features offices in New York (opened in 2005) and in London (opened in 2011).

Late last week, over coffee at a San Francisco bistro, I sat down with TCV’s founding general partner, Jay Hoag, and general partner Woody Marshall, to talk about some of the firm’s latest hits, which include recently acquired Dollar Shave Club and LinkedIn, some of whose shares TCV acquired in February when they plummeted more than 40 percent.

We also talked about why mutual fund companies (with which TCV sometimes competes on deals) don’t make great private company shareholders, and what can be the bad advice of investment bankers, who are largely telling companies to wait until 2017 to go public. Our chat, edited for length, follows.

TC: You’ve invested roughly $700 million in Europe since opening an office in London, including deals in Spotify and World Remit. That’s a lot of capital.

JH: In London and Berlin and the Scandinavian countries, there was lots of activity we were seeing, and we thought it better to see it from quasi-local office.

WM: In Europe, [the investors on the ground are] very much early stage or buyouts or else guys who may call themselves growth equity investors but are really doing growth-buyout deals with a lot of debt. In terms of minority investments that startups can spend on product and sales and tech and marketing, we don’t have a lot of [competition].

TC: What about other U.S firms? Doesn’t Insight Venture Partners do a lot of deals in Europe?

WM: Insight does everything globally out of one office in New York. We’re pretty active, so we don’t necessarily like to be a tourist. We like to be part of the local community, so we felt like it was important to plant our flag in the ground and hire local people.

TC: One of your more recent investments was in Believe Digital, a Paris-based next-generation music label. What does that deal tell us about your style?

WM: It’s a growing, profitable business that’s already achieved significant scale with hundreds of employees. Our co-investors are two little French funds, and we were the largest and only investor in the financing we did, which is pretty typical. Also, the company has been around long enough that some of the funds will be thinking about selling some of their stock going forward. Most of our deals are a mix of primary and secondary stakes.

TC: Five of your portfolio companies have been sold this year, including the data marketing firm Merkle, which just sold a majority stake to Dentsu. You also invested in LinkedIn, which turned out nicely for you. 

JH: We didn’t see that [Microsoft acquisition] coming; it was a nice surprise. But if you’re going to deploy a dollar, why wouldn’t you look at a public company as well as private companies and assess, “Well, this appears fully valued, but this other one is discounted by 70 percent,” as long as you have the right insight. And the public markets tend to overreact on a quarterly basis.

TC: Why aren’t more venture funds investing in discounted publicly traded companies, especially given that so many of them got socked earlier this year? My understanding is that most firms aren’t restricted from doing these deals here and there.

JH: Generally, it’s  because the [universities and endowments and other] sources of capital for all of us want to think of us as being in discrete [buckets]. Either it’s, “I’m in investing in a private manager” or “I’m investing in a public manager.” So it’s not an easy sell.

WM: It’s also hard. A lot of times you don’t have access to perfect information. It’s a different process. But your private activity informs your public activity and vice versa. Even when we aren’t looking to deploy money in the public market, we probably spend more time listening to quarterly conference calls than most private investors, because when you’re thinking about diligence, that’s some of the best information out there. You can spend a gazillion dollars for [repackaged intelligence] or just go online and look at whatever calls you 

TC: You mentioned that you buy a mix of primary and secondary stakes. Can you talk about some of the discounts you’re seeing?

WM: Off of what? It depends on the last round and the structure of the last round. A lot of people have said, “Stay away from unicorns.” But there are a lot of great companies out there that are looking to raise money. Maybe [their last round was] lavish [so the price is now] maybe a little bit up or down, but in the meantime, the business has materially executed since that last round. So even though the [valuation is] similar, your multiple is half because the business has doubled. You have to look at these opportunities on a relative basis.

TC: Mutual funds have gotten into your business in recent years. I still see them popping up here and there in late-stage deals.

WM: Sometimes we don’t see anybody. Sometimes, if there’s a more formal process, we do. One deal we looked at earlier this year, we thought the discount was appropriate, and one of the T Rowes or Fidelitys did a flat round. But you’re generally seeing less aggressive behavior from the Baillie Giffords and the BlackRocks. You’re definitely seeing people pulling back and reevaluating the bets they’ve already made. 

TC: Reevaluating and literally re-valuing — and publicly — which I think has surprised some of the companies these managers have backed.

JH: If we hear a company is talking with T Rowe and Fidelity and BlackRock, I understand why. The company probably wants a high price and a quick process. But we [know we] should probably spend our time elsewhere. Full stop.

[Mutual funds] are buying [private stakes] so they can have lower costs at the IPO price, etc. But the moment [their portfolio companies] underperform their competitors, that activity stops. These private investments have to have a return associated with them. If they’re buying high and selling low, that’s not good.

TC: Could you see action being taken against any of these managers?

JH: Mutual fund and hedge fund guys have been sued in the past over valuations. Even if it’s just 5 percent of your activity, with [people on Main Street] going in and out of your fund, your [net asset value] is a very important measure. These investors are buying in, assuming the valuations [they are paying at any single moment in time] are correct.

WM: Some of these guys, they have deep pockets but they get those alligator arms sometimes. And management teams are starting to say, “I got it.”

TC: We’ve seen more M&A. In addition to your deals, Walmart just paid $3.3 billion in cash and stock for e-tailer Jet. What did you think of that deal? Did they just pay billions of dollars for Jet founder Marc Lore?

JH: Well, you can see he’s signed up for five years, so there’s some part of the value that is: Marc can help us compete mano a mano with Amazon. Part of the value is the underlying metrics. It seemed like a forward leaning price tag; if I were an investor in that deal, I’d be super happy.

TC: Why are IPO numbers still so pathetic?

JH: Frankly, I’m baffled. There’ve been what – six tech IPOs this year? The worst year on record was 2009, with eight [IPOs], but that followed a global financial crisis.

That we’re in extremely low numbers owes in part to bankers advising companies to wait, [telling them] that after the election, uncertainty will be reduced and 2017 will be a great year. I think that’s consensus.

TC: It sounds from your tone like you don’t agree with that consensus. Are you telling your portfolio companies to go out now?

JH: Yes. Even last year, we had [just] three [portfolio companies go public] and there were just 22 total companies altogether. It’s a little baffling with the markets hitting highs, interests rates at zero, [and] companies growing well. I’m not sure why bankers are so hesitant.

Either way, if you’re an investor on the board of a company, you need to be thinking independently. What investors will value six or 12 months from now might be totally different than today. Right now, bankers are telling companies to get profitable even if they’re not growing because “that’s what the market wants.” Well, that’s bad advice. Our job is to sort through all that and make sure the company is making the right trade-offs.

TC: I do wonder if certain companies have missed their window already, including in your portfolio.

JH: I guess I’d bounce the premise back. Going public is just part of the battle. In an IPO, you’re selling 5 to 10 percent of the company. If you’re going to own between 90 to 95 percent post IPO, you shouldn’t care what the IPO price is. You should care a lot about what life as a public company will be one, two, three, four years down the line.

In terms of  missing the window, if you go public and six months later you fall apart, that’s a really unpleasant thing for all and in particular the CEO. I’m not a big believer in windows. You always have to be reinvesting in the next act to sustain your growth. But if you think you missed your window, that’s another way of saying your best days are behind you.

LinkedIn reports revenue gains ahead of Microsoft merger

Despite selling out for a cool $26.2 billion two months back, LinkedIn still has a job to do.

And it did just fine. 

The professional social network reported second-quarter earnings that beat analysts' expectations in revenue, driven by growth in new members and subscribers. 

But its results also included its largest net loss since going public in 2011. LinkedIn reported a loss of 89 cents per share compared to 53 cents the year prior. Excluding expenses, earnings per share of $1.13 would have beaten expectations of 78 cents per share. 

The stock increased by 0.25 percent in after-hours trading. 

LinkedIn posted revenue of $933 million, up 31 percent year over year. That figure beat expectations of $898 million.

Talent solutions — a package of recruiting tools and LinkedIn's biggest revenue stream — pulled in $597 million, a 35 percent increase year over year. 

LinkedIn credited sponsored content with bolstering its growth in marketing solutions, which brought in $181 million in the quarter.

The network also reported 450 million members for the second quarter. That's up from 433 million in April and a 18 percent increase from the year prior. 

Even with the dominance of Facebook for consumers' attention on mobile, more people are spending more time on LinkedIn. Pageviews per visitor are up 21 percent year over year. 

“Continued product innovation drove increased levels of engagement, and strengthened our enterprise offerings," LinkedIn CEO Jeff Weiner said in a statement. 

LinkedIn did not share outlook on the rest of 2016 due to the pending merger. The deal, the largest for Microsoft and in recent history of tech company mergers, still needs to gain regulatory approval.

Microsoft, who reportedly beat Facebook, Google and Salesforce on the deal, paid about a 50 percent premium on the company's share price. LinkedIn's stock and outlook had been falling and disappointing investors over the last year. 

"We believe joining forces with Microsoft enables us to further accelerate and scale our ability to deliver value and create economic opportunity for every member of the global workforce," Weiner said.

LinkedIn has been releasing new features prior to the merger. On Tuesday, the company announced its group of 500 influencers could post videos to the platform. 

Because who doesn't like video.

Why Microsoft’s Satya Nadella equates LinkedIn with Minecraft

You could make a case that Minecraft is the professional network of 10-year olds, but you’d have to work pretty hard at it. That’s not what Satya Nadella means when he uses Minecraft as an example of why LInkedIn was a great acquisition target for Microsoft, speaking toBloomberg today in an interview reflecting on Microsoft as a company advancing in years.

Here’s the key point Nadella makes in drawing a comparison between the two seemingly disparate acquisitions, which share the distinction of being the two largest deals in terms of dollar value Microsoft has made under his leadership:

When I look at both Minecraft and LInkedIn, they’re great businesses that are growing. And so, in fact, if anything, our core job is to take that franchise and give it more momentum. In the case of Minecraft, it’s the biggest PC game, and we are the PC company. Their growth was moving to console. We have a console. Therefore, we are the perfect owner. Same thing with LinkedIn. They’re a professional network for the world. We have the professional cloud.

It’s an interesting parallel, and possibly the most concise explanation of what sounds like the key deciding factor in both cases. Microsoft sees itself as possessing the platforms that can propel companies which still possess growth potential to the next stage.

Many people have extrapolated that LInkedIn could indeed bring a lot of value as a kind of social network layer woven throughout Office 365 and Microsoft’s other professional cloud offerings, and indeed, it does make sense that Nadella would see its cloud services as roughly equivalent to what Xbox represents for Mojang’s world builder.

If you’re feeling adventurous, maybe try taking this rubric and applying it to other potential big name acquisition targets Microsoft might seek out next. Twitter, for instance: Does Microsoft make anything that could take its potential and expose it to a whole new audience to help light a fire under network growth?

LinkedIn resetting passwords after 117 million user credentials stolen

Back in 2012, LinkedIn had a pretty major data breach in which hackers were thought to have nabbed around 6.5 million users' passwords. 

It turns out the number was much higher than originally suspected.

According to a blog post from LinkedIn, the company just learned that the data actually included more than 100 million email and password combinations. That number could be as high as 117 million, the alleged hacker told Mother board. 

In order to protect its users, LinkedIn has sent many of those affected an email telling them that their current password had been invalidated and advising it be reset. The company also suggested people use extra security measures on their accounts, such as two-step verification, to make sure hackers have trouble getting in.

After the data breach happened in 2012, LinkedIn reset the passwords of over 6 million users, but apparently did not suspect that emails had been stolen too.

According to Motherboard, the hacker that stole the LinkedIn credentials put them up for sale on an illegal marketplace on the dark web with a price tag of 5 bitcoins, equalling about $2,200. All of the passwords were encrypted, or "hashed," but one of Motherboard's sources said they had cracked 90% of the passwords in three days.

To be safe, LinkedIn suggests you change your account password even if you haven't received an email suggesting you do so.