eWEEK content and product recommendations are editorially independent. We may make money when you click on links to our partners. Learn More.
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.
Microsoft-LinkedIn Deal May Prove Better Fit Than Earlier Buyouts
Considering there’s been no stockholder approval for the acquisition, such a thing is possible—even though it’s not particularly likely, given the unanimous approval by the boards of directors of both companies.
The obvious question, given Microsoft’s acquisition track record, is whether this would work. After all, Microsoft’s decision to buy Nokia so it could have its own phone manufacturing capability didn’t turn out well. In 2015, Microsoft took a $7.6 billion charge and in 2016 wrote off another billion dollars in value. Microsoft ended up selling its Nokia handset division for a tiny percentage of what it paid.
A similar foray into online advertising had a similar outcome, when Microsoft wrote off its $6.3 billion purchase of aQuantive just five years after it bought the company in 2007.
So why does the LinkedIn deal make more sense? First, remember that not all Microsoft acquisitions have tanked. Skype is doing just fine despite significant competition and Visio is now a standard part of Microsoft Office. LinkedIn, which isn’t a hardware maker like Nokia and which isn’t an unrelated service like aQuantive, could become well-integrated into much of the business software and online services that Microsoft sells to enterprises.
Buying LinkedIn saves Microsoft the cost and effort of building its own social network, which is something the company had to have thought about as it stood on the sidelines watching Facebook, Linkedin and Twitter grow rapidly on their own. Of these three biggest social media players, LinkedIn with its millions of business users is the best fit for Microsoft.
There’s more to this than just marketing, which is another reason it seems to have a good chance of succeeding: While Microsoft will certainly use LinkedIn’s member list as a marketing target, it also helps the company stay top of mind in all aspects of business relationships.
After all, LinkedIn is a primary job-seeking site for professionals. It’s the place where professionals people network. It’s a site where professionals can keep their names in front of movers and shakers in their field. The constant connection with Microsoft, even in the background, could be very powerful.
Just by being in the background, Microsoft’s LinkedIn connection may be especially powerful because the company will know what business leaders are thinking, what they are trying to accomplish, and how they plan to do it.
This will provide Microsoft a means of having the perfect online forum for its products and ideas. It’s hard to beat being in the right place at just the right time. LinkedIn could help Microsoft do just that.