Service Provider Cloud

Microsoft & LinkedIn: Marriage Made in the Cloud

Microsoft acquiring LinkedIn might seem like a crazy idea at first: Why would an enterprise software company pay $26.2 billion for a professional social network? The two business don't appear to have much in common at all.

But Microsoft Corp. (Nasdaq: MSFT) and LinkedIn Corp. are companies in transition. Microsoft is well under way making the transformation from software to the cloud, while LinkedIn wants to be about more than "friending" and headhunting -- it wants to leverage the cloud to become the world's best resource for career advancement, sales and recruitment. The two companies are betting they can achieve those goals together.

The combination of Microsoft and LinkedIn is a marriage that brings baggage to the altar. LinkedIn boasts more than 433 million members worldwide but has yet to convert scale into profits. And Microsoft, meanwhile, is scrambling to convert its dwindling legacy on-premises enterprise software business to the cloud. (See Microsoft Nabs LinkedIn for $26.2B.)

Microsoft wants LinkedIn's enormous wealth of information about individuals' current jobs, work history and professional relationships -- information that you and I have input into our LinkedIn profiles -- along with LinkedIn's rich company profiles. Microsoft wants to integrate that information into its Office 365 cloud productivity suite as well as its Dynamics CRM application. Microsoft also values LinkedIn's Lynda cloud-based education and training service, which LinkedIn acquired for $1.5 billion early last year. Much of the Lynda curriculum is devoted to helping IT staff get professional training on Microsoft products and services.

For LinkedIn's part: In an open letter to employees announcing the sale Monday, LinkedIn CEO Jeff Weiner describes his vision for the social network. He wants LinkedIn to be the destination where companies find their next employee, workers find their next job, and get training for that position. LinkedIn also wants to enable sales.

But more than that: LinkedIn looks to "connect the world's professionals to make them more productive and successful, and ... create economic opportunity for every member of the global workforce," Weiner says.

As revealed in that letter, Weiner's vision is messianic. He notes that robots and drones are replacing workers now, and sees LinkedIn as a force for creating new opportunities.

Remember that dystopian view of the future in which technology displaces millions of people from their jobs? It's happening. In the last three weeks alone, Foxconn announced it will replace 60,000 factory workers with robots, a former CEO of McDonald's said given rising wages, the same would happen throughout their franchises, Walmart announced plans to start testing drones in its warehouses, and Elon Musk predicted fully autonomous car technology would arrive within two years.

Whether it's worker displacement, the skills gap, youth unemployment, or socio-economic stratification, the impact on society will be staggering. I've said it on multiple occasions and believe it even more so every day: creating economic opportunity will be the defining issue of our time. That's why I'm here and why I can't imagine doing any other job. Simply put, what we do matters, and matters more than ever.

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And all of that is right up Microsoft's alley.

Microsoft CEO Satya Nadella said in an open letter to employees announcing the acquisition: "In essence, we can reinvent ways to make professionals more productive while at the same time reinventing selling, marketing and talent management business processes."

LinkedIn will "retain its distinct brand and independence, as well as their culture which is very much aligned with ours," Nadella says. "Jeff will continue to be CEO of LinkedIn, he'll report to me and join our senior leadership team." Weiner will decide where it makes sense to integrate the two companies: He compares the integration to the independent structure enjoyed by YouTube Inc. inside Google (Nasdaq: GOOG), and by WhatsApp and Instagram inside Facebook .

But while LinkedIn might retain its identity and independence, there's a lot of application and platform integration planned once the acquisition closes (due this calendar year).

Next page: Key areas of integration

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kq4ym 6/23/2016 | 4:21:31 PM
Re: The Arrangement With "433 million members worldwide but has yet to convert scale into profits." one might wonder just what Microsoft has to gain. Maybe high hopes and the ability to convert a million or so folks to Microsoft products would be worth the investment?
mendyk 6/21/2016 | 9:24:54 AM
Re: Probably didn't work Good comment -- wish I thought of it. I was distracted by the cannibis cloud.
Mitch Wagner 6/20/2016 | 10:59:30 PM
Probably didn't work
Mitch Wagner 6/20/2016 | 8:09:32 PM
Re: The Arrangement Douglas Rushkoff points out that ad revenue has a finite limit to it. Ad revenue is about selling something else. We can't all just sell ads to each other -- somebody's got to make the things the ads are selling. 
mendyk 6/16/2016 | 11:19:24 AM
Re: The Arrangement In general, the guiding arithmetic of massive M&As goes something like this: At the announcement, 1 +1 = 3. After all dust settles, the equation is more like 1 + 1 = 1.333, and that's a better-case scenario. In Microsoft's last big deal with Nokia, the equation turned out to be more like 1 + 1 = 0.99. Also, a deal of this magnitude has to have a lot more going for it than potential for ad revenue. That cow is already well milked.
Mitch Wagner 6/16/2016 | 11:06:53 AM
Re: Culture Change Jill Again - He seems to have worked miracles changing the culture already. Usually it takes a returned founder (a la Steve Jobs) to make the kinds of internal changes that Microsoft is making. 

Also, Microsoft is getting pressure from an activist board of directors to make internal changes. Managers who resist may find themselves walking out the door carrying cardboard boxes bearing the former contents of their desks. 
Mitch Wagner 6/16/2016 | 11:04:49 AM
Re: The Arrangement Honestly, I would refuse to guess. A lot is going to depend on execution. There are two separate problems: One is the straightforward business problem of a company integrating a large acquisition.

The second is the technology problem of integrating that LinkedIn data and making it useful. Microsoft and others have been talking about some of the things they're talking about with LinkedIn for years. For example, in a large company, there's this idea that one employee might be working on a project involving flanges, and Office would identify who else in the company might be a flange expert, even on the other side of the world. I started hearing about visions like that nearly 20 years ago, and it doesn't seem much closer today. 

On the plus side, as Brian points out, there's the potential for advertising revenue and marketing. 
mendyk 6/16/2016 | 8:59:05 AM
Re: The Arrangement And if it can all work through Windows Phone, that would be awesome!
brooks7 6/15/2016 | 7:26:27 PM
Re: The Arrangement I joined the LinkedIn Blogging as an adjunct to my Wordpress Blog during the Beta of the tool.  The whole thing has steadily declined in value to me.  When it got started, I would regularly (twice a month or so) get promoted the Pulse Feed and that gave me a much wider audience.

Now, really only the Influencers get promoted.  I have stuck with it because I can post to groups, but groups have really fallen off as well.   At this point, my LinkedIn feed is not a lot better (content wise) than my Facebook feed.

The thing that I think that is missed is all the advertising $$ + all the business services (read Sales Navigator) licenses sold.  To me, that is the only place the value is at the moment.  I have looked at the profit associated with advertising in some Due Diligence, and I can see why Microsoft would want to be in that game.

If I were a MSFT strategist, I would be figuring out how to use LinkedIn to subtly market my products to the right folks.  But hey that's just me.


inkstainedwretch 6/15/2016 | 6:33:35 PM
Re: The Arrangement The most valuable business in the entire electronics industry is Google's ad business. To compete, a company needs vast data centers, big data capabilities, AI, a responsive user interface (a la Siri or Cortana, for example), and vast amounts of traffic from which data on consumer behavior can be culled. The combination is a predicate for a digital assistant that can not just respond to questions but also help people manage their lives.

Microsoft is one of the very very few companies that can pull all that together, and it would be corporate malfeasance to have the wherewithal to bite off a chunk of Google's ad business and not try. 

Microsoft's acquisition of LinkedIn looks like an attempt to get a holistic home+work view of consumers. If Microsoft pulls it all together successfully AND if it can make a version of Cortana that consumers will appreciate for the ability to manage their entire lives, not just their home lives, it will be that much more valuable to advertisers.

--Brian Santo
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