It’s commonplace to look at a company’s acquisition news and be puzzled by how the move fits in with the buyer’s vision. One need only looks at LinkedIn’s acquisition by Microsoft in 2016 as an example. In its largest deal to date, the Redmond, Wash.-based technology company spent more than $26 billion to acquire a professional social network. But why?
When looking at the pairing of these two companies, it’s all about the synergies around the professional workplace. On one hand, Microsoft brings the productivity tools (e.g. document management, spreadsheets, presentations, intranet communication, messaging, and email), that corporations and individuals are habitually using for years, while LinkedIn provides access to the networking capabilities people need to advance to the next level of their respective careers.
Nine months after the close of the acquisition, we’ve begun seeing more integrations between the two companies. Microsoft declared in a filing with the Securities and Exchange Commission (SEC) that the deal was because of a shared mission around “empowering power and organizations” with its aim of helping people “achieve more” and LinkedIn focused on being “more productive and successful.” It’s an intersection of two different graphs that these companies believe will establish a more perfect professional world.
The next opportunity
Just like Facebook, Google, and other tech companies, LinkedIn saw itself as something more than just being a one-trick pony. It has been working on this concept called the Economic Graph, a term coined by company chief executive Jeff Weiner in 2010. Thought of as similar to Facebook’s Social Graph, where everything is traceable and acted on based on who you’re friends with, it’s not about your personal social life, but who you want to be as a professional — you know when you’re ready to adult.
LinkedIn has made itself a service set around trying to empower professionals to be even better than they are now, helping them find the next opportunity to grow as human beings. Yes, you can find a job on LinkedIn, but you can also do that on Indeed, Monster, Career Builder, and a bevy of other sites. So what LinkedIn has turned to is providing additional tools that you might need when you’re not actively looking for work, when you’re in need of mentoring and professional development. It’s a full-service offering, that’s now in the hands of Microsoft.
When graphs intersect
Some suggest that the purchase of LinkedIn was to give Microsoft a foothold in social media, but that’s only one small piece of the prize that the Redmond, Wash.-based company is getting. Instead, one needs to look at the strategic benefit which is impacted by the changing way professionals behave and are looking for the next economic benefit.
What’s appealing for Microsoft is that it gets to tap into more than 500 million members and hopefully show that it’s more than just tools for the enterprise, but anything that these professionals need they can get from it. Sure, there’s a treasure trove of data that LinkedIn provides, but the long-term growth is building more mindshare, especially as new age working professionals may be opting for Google’s G Suite or other options. The LinkedIn deal offers up a plethora of offers, including not only a social network, but advertising, recruiting, professional development, and thought leadership. And it this scales from those looking for internships to the working class, and ultimately people seeking higher professions.
Prior to its acquisition, much of LinkedIn’s revenue came from three programs: Talent Solutions, Marketing Solutions, and Premium Subscriptions. It’s these areas that are perhaps of interest to Microsoft. About four years ago, I opined about LinkedIn’s Talent Solutions, suggesting that it was the company’s best-kept secret at the time. This is the area where Lynda.com (now LinkedIn Learning), Slideshare, Pulse, and other learning and development offerings are kept and currently contribute a large part of LinkedIn’s revenue — in its last quarter as an independent company, the company’s Talent Solutions generated $597 million of the company’s $933 million in revenue, which is a 35 percent annual increase. What we could see are integrations with Microsoft’s tools into this program to give members more capabilities to share knowledge with their network.
Right now, it seems that Microsoft’s tools are a bit isolated, meaning that there’s still remains a barrier of sorts between you creating a document in Microsoft Word, receive an email in Outlook, or communicate with a peer using Skype. There needs to be more fluidity for working individuals and the Microsoft-LinkedIn tie-up might usher in that era. Perhaps LinkedIn Groups could evolve into Slack-like offerings with the integration of OneDrive, Office, and Skype; or bring more native Word document and PowerPoint support to SlideShare and also to Lynda.com; or even incorporate professional data a la Rapportive into Outlook.
And let’s not forget about the possibility of incorporating LinkedIn’s Lookup app with Yammer or Microsoft SharePoint to create a cohesive experience in the workplace.
But it’s not just about productivity tools for the workplace that has Microsoft spending billions on. It’s also about taking its Dynamics CRM product to the next level in order to take on Salesforce (which had made its own bid to buy LinkedIn), SugarCRM, Jive, Netsuite, and others in the space. LinkedIn’s arsenal of sales solutions are very appealing to help Microsoft address this market within the enterprise.
Some of these tie-ins are already visible, such as LinkedIn syncing with Microsoft Dynamics, the rollout of a native Windows 10 desktop app, availability of LinkedIn Learning to Office 365 subscribers, powering of LinkedIn Lookup by Microsoft Active Directory, and more.
Earlier this year, ZDNet spotted evidence suggesting that Microsoft was interested in creating its own “talent engagement” applications, meaning that the company wants to pursue avenues into human resource management. It’s possible that Microsoft thinks LinkedIn not only offers it a treasure trove of knowledge, but a conduit to market to professionals and tap into businesses looking for more internal employee management tools, likely to rival Workday, Taleo, SAP, and others. Satya Nadella, Microsoft’s chief executive, told ZDNet’s Larry Dignan that he considered the human capital management space a “very exciting opportunity” for the company so it could be an interesting space to watch.
From predictive marketing through LinkedIn’s acquisition of Fliptop, its audience reach analytics app, the inclusion of Account Targeting, and more, the Mountain View, Calif.-based company has plenty of tools at Microsoft’s disposal that can enable sales people to really reach the right professionals. LinkedIn is still looking to find its way in the enterprise market, has stumbled with its $50 million writedown of its acquisition of “lead accelerator” Bizo.
Make no mistake that Microsoft’s advertising reach is pretty extensive, including through its partnerships with Yahoo. In Q4 2017, revenue from search advertising, excluding traffic acquisition costs, grew 10 percent. Although Google dominates the landscape, don’t discount the importance of what Microsoft’s Bing offers, especially when it could open up additional ad load on LinkedIn and give advertisers better targeting based on a profession, perhaps resulting in more spending being made.
As others have opined, Bing still needs a good display network and tacking on LinkedIn could be the start of bolstering the search engine’s standing among marketers.
A questionable future
While there’s plenty of upside for Microsoft, there’s skepticism about LinkedIn’s future, largely based on people’s perspective of what happens after becoming a Microsoft-owned company. Some point to its track record especially at Nokia, Yammer, Skype, and others. This happened to be the largest acquisition under the Nadella era and as such, it’s likely shareholders are paying attention to this new phase of Microsoft’s future.
Others have quipped about why LinkedIn sold in the first place. Was it because of the company’s struggling stock? Its growth? Some might argue about why the professional social network is even worthwhile anymore — when was the last time you updated your LinkedIn profile?
But time has shown after more than a year, Microsoft has kept its word, at least for now. LinkedIn has grown to more than 500 million members, although it declined to state how many are active — previously a bit more than 25 percent were regular users. It also contributes small portion to the bottom line of its parent company since last quarter it made up 4.4 percent of total non-GAAP revenue, or $1.1 billion
The future professional dynamic
Tech companies are often starting or changing their products in order to adapt around the evolving behaviors of customers. Just like how telecommunication providers and retailers have moved towards mobile apps, bots, and messaging services, so too must Microsoft as the future of work happens.
We’re seeing an abundance of solutions for workers, such as Slack, Google’s G Suite, Atlassian’s Trello and Hipchat, and others. To its credit, Microsoft does have Office 365 and Skype, but it needs more to regain the mantle it once had when practically every business used it.
What LinkedIn gives Microsoft is additional mindshare, not only as its parent but also as a first-tier partner where perhaps everything on the site and its services will be powered by its tech in ways I previously shared.
In a time filled with companies flaunting artificial intelligence, bots, and other new age technologies, one area that will be interesting to see if Microsoft does anything is with Cortana and your professional network. LinkedIn has been slowly touted the importance of messaging and bots on its social network and services. “People are using [LinkedIn Messaging] to have great conversations with recruiters and their connections. They’re doing it faster than before, and it’s giving people a great reason to connect with their networks,” LinkedIn’s then-senior director of product management Mark Hull once told me. There’s no rush to implement bots or open it up to developers any time soon, but the potential here is that Microsoft could leverage Cortana’s tech to power LinkedIn’s recommendation and be the personal secretary we all need to manage our professional relationships. Sure, that may be far-fetched, but it’s possible these things could happen through this marriage.
Much of my examples are pure speculation, I’ll admit, and I have no idea about what Microsoft’s grand vision for LinkedIn or the professional space is. But what appears clear is that Microsoft wants to further tap into the professional space, specifically as it pertains to the socialization and the changing way we work and interact as part of the working class. To achieve its objective, LinkedIn’s Economic Graph could prove invaluable.