LinkedIn may — and should — use its new funding to go after the business software market

Over the weekend, we heard that LinkedIn has big news in store, that was likely not an acquisition by the most prominent interested buyer, News Corp. After we published the story on Sunday evening, we heard from two sources that LinkedIn was instead working on raising a new funding round — this is a company that also claims to be making $100 million in revenue this year. More on that in a moment.

Additional details have since emerged: Techcrunch confirmed the funding angle yesterday afternoon, reporting that bank Allen & Co. was trying to help the Mountain View, Calif. company raise a round that would value it at $1 billion. Today, Silicon Alley Insider confirms that angle again, reporting that the round is nearly closed.

So what would LinkedIn need a new round to actually fund, since it’s purportedly already bringing in the cash? Well, the latest I’m hearing is that LinkedIn is looking at going after new areas, outside of the business social networking base that it’s known for. What does that mean? Maybe it’s going to try to be a more general social network? I doubt that — it already is facing competition from Facebook for business networking, and becoming more like Facebook would just make LinkedIn less differentiated. Instead, my guess is that LinkedIn is looking hard at how to compete in so-called enteprise social software, in some sense competing against the many startups that somehow try to integrate blogs, wikis, social networks, messaging features and other social tools into a company’s internal software systems.

LinkedIn already has large portions of a given company using it, why not leverage that user base to start selling (or giving away) tools that build on the LinkedIn service? Of course, it’s not just startups that LinkedIn would be competing against here.

It could be thinking about competing against so-called Software as a Service companies like Salesforce. Take a quick look at what LinkedIn has been focusing on in recent months. A developer platform (albeit an unlaunched one that one of our sources went so far as to call “vaporware”), an expert research network to help researchers in a company find quality independent analysis, and company profile pages that brings together information about a company and people in it.

It’s pretty easy to imagine LinkedIn introducing a calendar system, project management software, or any number of simple enterprise software features — integrated with business relationship data that no other company has access to. For a nice little example of LinkedIn thinking about such software, take a look at this screenshot (above) of this conference scheduling application, created as a demo by the company around the time that it launched its developer platform last fall. I’ve heard from Facebook employees that in past years it has been approached by large corporations looking for it to create them entire intranets. This is one area where LinkedIn has clear potential to one-up Facebook.

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