NEWS ANALYSIS: Although more consumers use Microsoft products, enterprises are its most important customers, and owning LinkedIn can help deepen their relationship.
Perhaps it was because I heard the news
about Microsoft's purchase of LinkedIn while attempting to navigate Washington's Capital Beltway, but at the time, it seemed like a breath of fresh air.
Around me, a flood of crazed lobbyists and lawyers battled each other to see how fast they could go in the clogged traffic. So, deciding sanity had its benefits, I thought about the proposed merger instead.
There's no question that the $26.2 billion Microsoft plans to pay for the social media company is a lot of money and, in fact, is the highest price ever paid for an online site of that type.
Clearly Microsoft has an idea that it can leverage the purchase into additional sales of its core business applications and cloud services. But considering LinkedIn's recent history, Microsoft should be concerned about the long-term value of the assets it's acquiring.
This year LinkedIn missed earnings estimates and shortly after it had to deal with the fallout of a massive data breach that occurred four years ago. Millions of LinkedIn subscribers were told they had to change their passwords and, in some cases, high-profile users found their login information had been stolen. This doesn't bode well for a corporate buyout costing $196 per share.
Presumably Microsoft looked deep inside LinkedIn and liked what it saw. Unlike other social networks, LinkedIn is focused on professionals, and a significant number of those professionals are either decision-makers in their organizations or they're on their way into those positions. They tend to be people with significant influence in their organization and professions.
In other words, these are exactly the people that Microsoft needs to stay in close touch with as it continues to develop markets for its cloud business applications and services. In addition, LinkedIn has some synergies that will work with Microsoft's suite of products.
Jack Gold, principal analyst for J. Gold Associates, noted LinkedIn will be highly complementary to Microsoft's Skype for Business, Yammer and other enterprise-focused services. In addition, he said, Microsoft can get much better insight into its customer base.
“Owning LinkedIn and applying analytics tools it already has give Microsoft a great way to keep a pulse on what business users are doing on the Web and how they may use certain tools and products,” Gold said in a statement provided to the media. “This ability will give Microsoft lots of knowledge in what and how to deploy future products.”
Gold also said that LinkedIn's position as a major cloud service will give Microsoft greater exposure for its cloud products, including Azure.
But there's another reason: Microsoft buying LinkedIn means Google can't own it. Keeping such services out of Google's hands is a primary concern for companies that are competing with Google, and this is one time when it may work out. Unless, of course, Google decides to turn LinkedIn's head with even more money.