Microsoft has announced it is to purchased business network site LinkedIn for $26.2 billion. The price shocked the markets and was a premium of almost 50% on LinkedIn’s close price last Friday.
More importantly for LinkedIn it continued the 3 month rally in the share price although later in the day the price dropped below the Microsoft offer. Meanwhile Microsoft’s shares initially dropped over 2% although they quickly recovered some of that. This little shareprice movement on the deal might suggest that the markets see little significant upside for the company in this purchase. In fact the reaction from commentators seems mixed, though most commentators appear to be positive.
Daniel Domberger, Partner at Livingstone, commented “Microsoft has struggled both to diversify and to integrate major acquisitions. This deal could be seen as it playing catch up to other players such as Alphabet and Facebook, as they have diversified into broader holding companies. On the other hand, if it is to be shown to be a genuine strategic move, Microsoft will have to integrate it far more deeply and successfully than it has in the past.
“However, this deal clearly shows Microsoft is prepared to go back to its roots and bolster its original mission: to empower every person and organization to achieve more.”
What is Microsoft’s goal?
It’s a good question. Paying this much for LinkedIn seems excessive if all Microsoft was after was a social network. To perhaps understand where Microsoft is going there is a need to look a little deeper at this deal
The better question here is “What does LinkedIn give Microsoft?” That’s much easier to answer. While the quality of content on LinkedIn over the last year is slowly declining towards that on Facebook, it still possesses a draw for business people. While the level of false profiles is hard to establish, the reality is that it is likely to be less than on Facebook and Twitter. This means that Microsoft gains access to a vast number of business people at all levels of businesses large and small.
What this means, in effect, is that Microsoft is gaining a whole new channel to market to. In past years the success of the Microsoft Developer Network (MSDN) was enough to guarantee Microsoft a lot of new and repeat business. Developers liked the access to products that they gained from MSDN and used those products to develop new solutions. When those solutions went into production Microsoft mopped up the licence fees. It was, as Dire Straits once put it, money for nothing!
As cloud has become so important for Microsoft it has struggled to find new ways to get inside companies. It’s two cash cows, operating systems and Office are still delivering the goods but not at the levels Microsoft wants. LinkedIn allows it to market more effectively to a wider business audience but it is one that it will have to treat with caution.
It cannot, for example, simply flood LinkedIn with stories about how well it is doing or push ever increasing volumes of sponsored content. If that was all it intends to do it could have done that through advertising and saved itself the vast majority of the $26 billion. What is can do it carefully mine that data to see where it needs to be reacting and where the business opportunities are.
Yes, it could have done that before by simply buying access to the LinkedIn firehose and then running analytics against that. The problem with that is the volume of data and the opportunity of doing that in real-time. This is where the deal looks clever.
LinkedIn will get access to Microsoft’s analytics tools to do real-time analysis of its own network. It will also get access to Microsoft machine learning technology which will not only speed up the analysis but deliver some interesting insights into the data. Those insights will be shared with the parent company who could then use them to help shape future product development.
Another benefit for both LinkedIn and Microsoft is moving everything to the Azure cloud platform. This would make LinkedIn the most complex customer that Microsoft has and provide a flagship customer to demonstrate just how good Azure really is. At the same time the move will hurt Google on whose platform LinkedIn currently sits.
A success migration from Google to Microsoft will also send another message to the market. You are no longer locked in to cloud irrespective of who you are working with. This is a message cloud vendors have been pushing but often without a lot of conviction. This is why the OpenStack Foundation moved last year to remove proprietary code from different OpenStack distributions.
Microsoft also now has the capability of limiting or controlling access to data by its competitors. They will need to be very careful if they wish to restrict the access that exists now, but with the move to Azure it will be interesting to see whether that card is played.
At the moment we are all speculating as to the why’s and who gains out of this deal. It will take months before we begin to see exactly what benefits Microsoft and LinkedIn both get from this acquisition. It may take even longer to see what benefits there are for the users of LinkedIn, Office and Dynamics and whether a new platform springs up to persuade many of those users to defect. Whatever happens, this is going to be interesting to watch.