Why Microsoft Bought LinkedIn

Date: 14-06-2016
Source: The Wall Street Journal
Microsoft and LinkedIn are a natural fit, and the deal may fare better than Microsoft’s past acquisitions

NadellaMicrosoft Chief Executive Satya Nadella has said that LinkedIn will be allowed significant autonomy after the acquisition.

Microsoft Corp.’s planned acquisition of LinkedIn Corp. potentially is a very savvy move, though you would be hard-pressed to discern that.

There are lots of reasons for skepticism. The price tag, for one. At $26.2 billion, it is by far Microsoft’s largest acquisition ever. The size alone is a reason for caution, given the sorry history of such large deals.

Then, there is Microsoft’s own checkered history with acquisitions. It has recorded write-downs exceeding the $9.4 billion it paid for the handset unit of Nokia Corp. in 2014. Earlier deals for Skype Technologies and Yammer Inc., designed to bolster Microsoft’s digital and social credentials, did little of either.

But this deal can succeed where the others failed.

Here’s why.

There is real synergy between the companies and their products, particularly Microsoft’s Office productivity suite—now delivered primarily online—and LinkedIn’s core database of more than 400 million mostly professional profiles.

As Microsoft Chief Executive Satya Nadella told The Wall Street Journal, “It’s really the coming together of the professional cloud and the professional network.” In other words, we now work by toggling between our productivity software and our social networks. But why should the two be separate?

Mr. Nadella is betting that were these two concepts reconceived today, they would be one.

LinkedIn’s users are, arguably, Microsoft’s core demographic. They also offer Microsoft something it has long sought but never had—a network with which users identify. Microsoft needs to persuade LinkedIn users to adopt that identity, and use it across as many Microsoft products as possible.

Access to those users, as well as the enormous amounts of data they throw off, could yield insights and products within Microsoft that allow it to monetize its investment in LinkedIn in ways that the professional networking site might not be able to. Mr. Nadella already has mentioned a few of these, including going into a sales meeting armed with the bios of participants, and getting a feed of potential experts from LinkedIn whenever Office notices you’re working on a relevant task.

LinkedIn also could supercharge Microsoft’s Customer Relationship Management (CRM) software, used to identify and track sales leads. Microsoft is in fourth place in market share among the large CRM players, including Salesforce.com Inc., SAP SE and Oracle Corp.

Salesforce is the market leader, but it holds a minority of the complex and sometimes ill-defined market.

LinkedIn already has its own CRM-type product, LinkedIn Sales Navigator, but more important, it has the data and reach that any CRM company would covet.

If CRM is ultimately about managing relationships, what better vehicle for that than an existing social network with its built-in insight about who is connected to whom?

LinkedIn shares fell by nearly half in a single day in February when the company issued a gloomy sales outlook. Michael Wade, professor of innovation and strategy at Switzerland-based business school IMD, says the company hasn’t lived up to its potential for a while.

Mr. Wade says LinkedIn hasn’t evolved quickly enough beyond its roots as a recruiting tool and job-search site. Most of its users aren’t looking for a job, and LinkedIn has so far done a poor job of getting them to come back to the site regularly to connect with and expand their professional networks. Only about one quarter of LinkedIn’s 400 million “cumulative” users return to the site every month.

That brings us to perhaps the biggest reason why the deal may succeed: Mr. Nadella. Put bluntly, Microsoft today is a very different company than the one that acquired Nokia, Skype or Yammer. Under Mr. Nadella’s predecessor, Steve Ballmer, Microsoft sought to drive users to its platforms, primarily Windows.

As a corollary, that meant that acquisitions were quickly integrated with other Microsoft products and development of new features slowed.

Mr. Nadella has shown a willingness to meet users where they are, even if that is devices running Apple Inc.’s iOS or Alphabet Inc.’s Android mobile operating systems. On Monday, Mr. Nadella said LinkedIn will be allowed significant autonomy, similar to Microsoft’s handling of Minecraft maker Mojang.

That would mean walking a fine line between autonomy and synergy. The longer the rope that Mr. Nadella gives LinkedIn CEO Jeff Weiner, the less benefit there may be to Microsoft’s products.

But don’t bet against him. If Mr. Nadella can re-energize an organization as big and legacy-bound as Microsoft, who is to say he can’t do the same for 13-year-old LinkedIn.

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