Why Did Microsoft Spend $26 Billion to Buy LinkedIn?

Why Did Microsoft Spend $26 Billion to Buy LinkedIn?

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    With a goal to streamline business technology and networking, Microsoft recently made a big gamble by purchasing LinkedIn for $26.2 billion, marking one of the biggest deals in tech history and one of the riskiest moves ever by Microsoft. According to Microsoft CEO Satya Nadella, the acquisition is about bringing together the professional cloud, which is the core of Microsoft, and the professional network, which is the core of LinkedIn. When combined, these two products should be able to help workers get their jobs done more seamlessly, and also increase the popularity of both entities.

     

    Microsoft & LinkedIn’s Lackluster Performance

    LinkedIn may be the world’s top professional networking site, but it has seen a drop in popularity in recent years. Although the majority of professionals have a LinkedIn account (there were 434 million worldwide users), less than 25% of those people actually log on to LinkedIn once a month. The number of active users has been dropping over the last months and years, which is usually an early sign of a struggling social network. In February, LinkedIn stock dropped more than 40% in a single day after the annual forecast was lowered, largely due to increased competition from other social networks like Facebook and the fact that people don’t want to pay for advanced networking and recruiting features in a slow economy.

    On the other side, Microsoft has made a push in recent years to move its services to the cloud. While people traditionally used Microsoft Office Suite solely on their desktop computers, customers can now sign up for an annual service to access Microsoft Office files anywhere via the cloud. The push was a gamble and a big focus for Nadella, but it puts Microsoft on  track to compete with smaller, cloud-based companies that could grow in coming years. As mobile technology increases, more people want to take their work on the road and be able to collaborate and save documents from anywhere in the world. However, more growth means more competition, and Microsoft’s user base has been flat lining lately.

     

    Mutually Beneficial Relationship

    One of the biggest selling points for the deal is how much it could help both companies and reinforce their services. Microsoft seems to be perpetually playing catch up to Apple, but the ability to integrate LinkedIn tools into the Office Suite could potentially be a game-changer for the workplace. Users could now use LinkedIn to prepare for meetings, Skype calls, or shared documents. In an increasingly connected world, being able to add a social network feature to standard work programs can be incredibly beneficial and lead to more and easier communication and collaboration.

    The deal could also be a big boost for Cortana, Microsoft’s digital assistant. By being able to access a person’s LinkedIn network and contacts, Cortana could be more productive in finding contact information, setting meetings, and making connections. Microsoft even used the example of Cortana telling a user information about an upcoming meeting, including where the person went to school and other connections and tidbits from their profile that could be useful to build relationships and make connections. LinkedIn hopes that the deal will lead to people accessing their personal networks more often, especially if they can do it as part of their everyday work.

     

    Microsoft’s Plans for the Future

    Both companies have many moving parts and applications, which gives Microsoft lots of options of how to combine the two entities. At the top of the docket is to integrate Microsoft news and tutorials into LinkedIn, which could increase the number of users and the amount of ad revenue. There are also early plans to incorporate LinkedIn into Skype so that users can have a richer social network experience in their voice and video calls.

    Microsoft also has plans to harness LinkedIn’s rich data services. The deal could also be huge for Microsoft’s often overlooked customer relationship management program Dynamics, which works with back-office functions and sales tools. Using LinkedIn’s strong recruiting and talent management programs could help Microsoft grow this product line and take a bigger chunk of the combined $50 billion-plus markets.

    At first glance, Microsoft’s purchase of LinkedIn may seem like a misguided decision, especially with LinkedIn’s falling revenue. However, if the companies and technologies can successfully integrate, it could pay off big time and slingshot Microsoft to the top of the cloud-based workplace enterprise world. The deal is also a good case study for other potential mergers—does combining two slightly worn-out companies turn them into one brighter company or just keep them both dull? Time will tell if $26 billion was a smart investment or a boondoggle.

     

     

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