This week’s top news story in digital marketing is undoubtedly Microsoft’s $26.2 billion acquisition of LinkedIn. The news was announced by the two digital giants on Monday (13/06/16).
In an article posted on their blog, LinkedIn stressed that the acquisition would not affect the brand’s core values: “LinkedIn’s vision – to create economic opportunity for every member of the global workforce – is not changing and our members still come first”.
Nevertheless, Microsoft are sure to steer the platform in a direction to suit their own vision – and balance sheet. LinkedIn drew in a total revenue of $154.1 million over the first quarter of 2016. At that rate it would take Microsoft roughly forty-two-and-a-half years to recoup their initial outlay, and that’s before we take into account LinkedIn’s operating costs. To put that into perspective, forty-two-and-a-half-years ago, Microsoft didn’t even exist. More generous estimates would have it that 2016 is set to be LinkedIn’s first billion dollar year, but if the platform is to stick to its existing revenue streams and rate of growth, Microsoft still seem destined for a long slog.
So how will Microsoft make their money back, and what will the acquisition mean for LinkedIn? Here’s what some of the leading commentators had to say:
“Usually this is the part in the story about an acquisition where the writer lays out all the reasons that the acquisition could go wrong. But this is the rare case where nearly any change to the acquired company would seem preferable to the status quo. Weiner all but admitted as much in his memo to employees: “Imagine a world where we’re not pressured to compromise on long-term investment, hesitant to disrupt ourselves, or hamstrung in the way we can reward and acquire new talent,” he wrote. That world has now arrived, and LinkedIn can begin putting its money where its considerable mouth is. It may never achieve its original vision, but it may very well help achieve Microsoft’s.”
“[This deal could be] the first instalment of Microsoft’s own “alphabet.” The company may be creating a collection of businesses that are distinct from each other but support the same broad vision.
“And, if it works, the collection could expand. Skype, acquired by Microsoft in 2011, would fit this strategy, as could future acquisitions – even Salesforce.com, which was thought to be on Microsoft’s radar before the LinkedIn deal came down. (Remember: credit is still cheap.)
“How would Microsoft manage this collection of businesses? Differently from its core business, that’s for sure. Microsoft’s core is a huge annuity based on a dominant market share. The reason to have an array of related but independent businesses is to manage them as options on future growth. They can be made to play with the core when it makes sense, but they can otherwise be “independent,” the term so loved by LinkedIn’s team.
“For a Microsoft traditionally steeped in tight integration and control, such an organiZational strategy would be a real innovation.”
“There are three main challenges to Microsoft’s plans. It is shelling out the equivalent of around $250 for each monthly user of LinkedIn to purchase the firm. To keep shareholders happy, it will need to add users to LinkedIn’s platform more quickly or be clearer about how it can make more money from their data.
“The second is Microsoft’s poor track record with big deals. Its purchase of Skype in 2011 for $8.5 billion has been no runaway success. Microsoft squandered over $6.3 billion on aQuantive, an online-advertising firm that it bought in 2007, and $7.2 billion on Nokia’s handset business in 2014. Both disasters happened before Mr Nadella took over, but “the historic playbook says it’s not going to work,” reckons Brent Thill, an analyst at UBS, a bank. Mr Nadella intends to keep LinkedIn as an independent company, perhaps because he has seen the pitfalls of integrating large acquisitions at first hand.
“The third drawback is the behaviour of companies and users. Mr Nadella wants LinkedIn to become the centrepoint for news and other details about people’s work lives, but companies are unlikely to want to give their employees more of an excuse to spend time on social media. Some bosses regard LinkedIn with hostility because it makes money from recruiters out to poach their employees. They will to want to let LinkedIn further embed itself at their companies. Already some large firms block or restrict access to LinkedIn on their networks. Users may also grow uncomfortable if Microsoft uses their data elsewhere and could stop using the service. Mr Nadella has acknowledged they will have to present what they know about users “tastefully”.”
There’s no concrete news on changes to LinkedIn as yet, but we would strongly recommend keeping tabs on their blog over the coming months to ensure you can respond to updates efficiently.
One thing we can instantly ascertain is that LinkedIn isn’t likely to be going anywhere fast – whether or not Microsoft’s investment turns out to be a smart one in the long run, we now know with greater certainty that any work we put into our personal and company profiles in the short or medium term will not be wasted on a dying platform.