One of the biggest information technology companies in the world announced its merger with the world’s largest professional network on June 13th 2016. LinkedIn was bought by Microsoft in an all-cash transaction at $26.2 billion for $196 per share. Microsoft CEO Satya Nadella’s objective for the acquisition echoed in his statement “Together we can accelerate the growth of LinkedIn, as well as Microsoft Office 365 and Dynamics as we seek to empower every person and organization on the planet.” (Microsoft News Center, 2016). In over 4 decades of Microsoft’s existence, the largest software-maker has been able to connect with over 1 billion users. On the other hand, LinkedIn has shown tremendous growth as the world’s largest professional network with increased membership to more than 433 million members worldwide. Adding this with the intelligent LinkedIn newsfeed, the year-on-year engagement growth are vital markers that prove their standing today.
In its attempt to penetrate the professional networking platform, Microsoft has chosen LinkedIn to join them on their journey to ‘empower people and organizations’ throughout the world. “Just as we have changed the way the world connects to opportunity, this relationship with Microsoft, and the combination of their cloud and LinkedIn‘s network, now gives us a chance to also change the way the world works.” “For the last 13 years, we’ve been uniquely positioned to connect professionals to make them more productive and successful, and I’m looking forward to leading our team through the next chapter of our story.” Read Weiner’s letter on the LinkedIn – Microsoft deal. (Weiner, 2016). LinkedIn’s vision to ‘create economic opportunity for every member of the global workforce through the ongoing development of the world’s first economic graph’ is ambitious, yet not impossible with over 400 million members in just 13 years. (LinkedIn, 2014) (Figure 1, Microsoft News Center, 2016).
LinkedIn’s acquisition by Microsoft can be seen as one which involves combining synergies that would ultimately would help develop new businesses. In this approach, Microsoft would use LinkedIn’s technology and integrate it in its software to provide their users the ‘ultimate professional experience’. Although this is speculated to be a reason for the acquisition, analysts find it hard to imagine the deal to be purely a ‘blend of businesses’ since Microsoft paid $9 billion premium (which is over LinkedIn’s market value).
Another reason why this acquisition may not seem to be a simple ‘mixing of synergies’ is due to Microsoft’s previous fail with a similar approach with Nokia. While the 2014 Nokia acquisition was initially made to add value to Microsoft’s services, the deal is perceived as a failure since after a year of making the deal, Microsoft wrote off Nokia for $7.6 billion (which is more than what it paid the phone business for – $7.2 billion). In 2015 Microsoft announced 7,800 job cuts and Satya Nadella stated that Microsoft was restructuring, further adding to his statement “Microsoft devices will spark innovation, create new categories and generate opportunity for the Windows ecosystem more broadly. Our reinvention will be centered on creating mobility of experiences across the entire device family including phones.” (Warren, 2015).
Another acquisition model that would make better sense is an integration of strategic mix with the private equity model. This deal would have the same benefits as combined synergies in addition to pumping business with resources and possibly, sell it high in the future. A better comparison to this type of acquisition is the ‘Google model’ also known as the ‘Alphabet model’. In this type of acquisition, the company evaluates businesses with potential, acquires them with the purpose to nurture them and at the same time let them run independently. If this merger is Microsoft’s way to follow Google, then LinkedIn is the first step towards Microsoft’s own ‘alphabet’. (Gomes-Casseres, 2016). The parent company would have numerous businesses, independently running yet a part of the same mission.
When the Microsoft’s acquisition of LinkedIn was announced, senior analysts and industry experts saw this move as a failure. One of them was Roger L. Martin, who in his Harvard Business Review article explicitly states that “Companies that focus on what they are going to get from an acquisition are less likely to succeed than those that focus on what they have to give it.” According to him a staggering ‘70%-90% of acquisitions turn out to be abysmal failures.’ (Martin, 2016). The question that everyone seems to asking is
What would Microsoft benefit from acquiring LinkedIn? How would LinkedIn benefit from Microsoft after the acquisition?’
There could be two possible significant reasons for an acquisition of this magnitude. First, to provide the acquired business increased growth capital, second, to overlook the management and provide valuable skills wherever required. This transfer of rich resources and sharing capabilities between businesses is a risk for both to make a collaborative effort to deliver better services and products. But since Microsoft said that “LinkedIn will retain its distinct brand, culture, and independence”, it is better understood that overlooking LinkedIn’s management is not on Microsoft’s list. (Frick, 2016)
Microsoft has an established market presence and is also one of the top companies with the highest spend in the research and development (R&D) department. Another part of Microsoft, fully dedicated to conduct research in top universities across the globe is called Microsoft Research. Focusing on their users overall professional development, one of the many companies LinkedIn acquired called lynda.com is an online learning platform to help teach people business and technology skills. Both Microsoft and LinkedIn merged as one could encourage participation by professionals and help leverage user engagement. (Figure 2, Warren, 2016) The target segment for both LinkedIn and Microsoft include a majority of career-oriented digital enthusiasts. This list includes students, young professionals, executives and company employees. Microsoft has a reputation to create innovative technologies, having introduced products like Xbox 360 and Skype translator in the recent years. (Casey & Hackett, 2014).
If Microsoft has stood the test of time, LinkedIn stands as the dominant professional networking platform today, having acquired several hundreds of million users within a span of a couple of years. There is a visible growth in IoT (Internet of Things) market giving way to the growing mobile application servers. This fits with LinkedIn’s focus on its mobile presence with its recent year-on-year increase at a rate of 49%. (Microsoft News Center, 2016) Other major opportunities include introducing Microsoft users to their cloud computing services integrated with the LinkedIn platform. Microsoft can help organize the large LinkedIn database in a revolutionary way by converting them into ‘data products’ and selling them to members, recruiters and universities. (Davenport, 2016) Having said that, Microsoft and LinkedIn have had their share of legal issues where the latter even faced data privacy violations. Both these giants face extreme competition and with their ongoing legal proceedings, they may invite government regulatory laws.
Another point to ponder over is how these very two distinct company cultures are going to co-exist post-merger. While one has aged decades and stands as a bureaucratic giant, the other is young, energetic and constantly innovating. Not to insinuate that post-merger ‘culture-fit’ would be the number 1 problem between the companies but acquisitions where office cultures prove compatible have noticeably been more successful. (Knilans, 2009). Although most of LinkedIn’s revenue is generated from advertisements and selling subscriptions to corporate recruiters, pushing organic content creation on its platform is one of reasons why 100 million people visit LinkedIn pages each month.
LinkedIn is emerging as a hub for content.
People turn to LinkedIn for opinionated articles from influencers, company executives and experts, applauded journalists and multinational companies. In addition to using LinkedIn to get bigger reach in terms of social networking services and professional content, Microsoft will use LinkedIn’s social graph as an integrated selling tool alongside its existing CRM products. (Lunden, 2016). While the competition in the market is fierce, having merged into one force, the companies have notably become more powerful from what they were. (LinkedIn Corporation SWOT Analysis, 2016, pp. 4; Microsoft Corporation SWOT Analysis, 2016, pp. 4)
In their interview (Nadella & Weiner, 2016), both Satya and Jeff talk about how the merger would help them create an individual’s ‘entire professional experience’, transforming careers worldwide. The possibilities are endless with Microsoft delivering its users with the latest software technology with a choice to be a part of the world’s largest professional network. Having acquired intelligent businesses in the past couple years, Microsoft seems to be planning a huge comeback with its most recent purchase. Although Microsoft has bought Nokia’s Devices and Services division (only the smartphone department in Nokia), there is a possibility they join hands with Nokia’s Technology department in the future which is currently working on introducing the world to a ‘new era of communication’ through 5G. (Nokia Networks, 2016). LinkedIn, the world’s most influential, specialised, highly read, constantly-updated digital media companies (Feller, 2016; Figure 3, Gershbein, 2016) can play a strategic role in this comeback and help reposition Microsoft.
As on early 2016, there are about 87 million millennials on LinkedIn (LinkedIn Marketing Solutions, 2016) who spend 18 hours a day consuming media (Taylor, 2014). These numbers signify a surge in the need access this content from anywhere (read: mobility) and satisfy the need for immediacy of information. As social networking takes over our personal and professional lives, connecting online will be as vital as face-to-face meetings. Microsoft will attempt to transform our online experience into something more valuable through measurable reach and influence. If LinkedIn manages to retain its independence and continue to engage its audiences whilst under Microsoft’s years of wisdom, LinkedIn could change Microsoft’s history with acquisitions.
At this point, LinkedIn’s abilities to connect the world with every professional and Microsoft’s mission to empower each and every person through their services can be critically analysed as an attempt to outdo increasing competition in the industry. The risk of reputation lies with both, as both brands have earned significant value over the years. With the introduction of smartphones using Microsoft and Nokia’s technology in the near future, Microsoft’s relationship with LinkedIn will be tested.
This case study was first put together as a part of my coursework for master of marketing communications at the University of Melbourne.