Microsoft, LinkedIn, fear and advertising
Microsoft’s agreed all-cash acquisition this week of LinkedIn for a price tag of $26.2 billion is staggering. The astronomically high price of more than a 50% premium on the share price of the struggling LinkedIn business is the most eye-catching, but the vagueness of the supposed benefits explained so far by Satya Nadella, Microsoft CEO, is equally breathtaking.
The acquisition of LinkedIn is the second largest technology sector deal ever, being surpassed only by the Dell-EMC deal, so it’s reasonable to assume there would be similarly super-sized benefits. But what are they?
In a letter to staff this week, and in investor conference calls, Satya Nadella described some of the benefits he thought LinkedIn would bring to Microsoft. The underlying theme was that Microsoft would use LinkedIn’s store of personal data from its 433 million members to insert into Microsoft products such as Office 365. The examples given by Satya Nadella include embedding LinkedIn’s newsfeed to include articles relevant to projects you are working on, or, having Office software suggest an expert to connect with via LinkedIn. The former is banal, whereas the latter is irritating. Those of you old enough to remember Word 97 might recall the particularly annoying Clippy and Rover the dog, animated characters which popped up at inappropriate moments as you we using Microsoft’s software with messages such as “Hey, I see you’re trying to write a memo. Would you like some help with that?” Would you really want Microsoft Word suggesting to you in the same manner that “Hey, we have 500 experts on LinkedIn just waiting to tell you how to write this project plan?”
I don’t think that real improvements in software productivity or features have much to do with why Microsoft enthuses about the deal. I think there will be benefits for Microsoft, and the two most significant ones relate to advertising and fear. Microsoft undoubtedly does have the technological and engineering skills required to link the personal data of 433 million LinkedIn users with a variety of captive cloud platforms owned by Microsoft. Advertising which is personalised using the LinkedIn data and delivered using those already successful platforms could be a very significant new revenue stream for Microsoft.
However, in my view the biggest single advantage of this deal to Microsoft is the removal of fear. The fear that the struggling LinkedIn would fall into the hands of Facebook or Google, allowing them an entry into the business flavour of social networking. It has now emerged that Salesforce considered making a bid for LinkedIn, but with net cash of only $2billion compared to Microsoft’s $70 billion, it was never in a position to compete. So, perhaps the real reason to pay 50% more than the share price for a struggling business was simply to keep it out of the hands of rivals. What will Microsoft do with it now?