Synergistic effect of LinkedIn’s takeover by Microsoft

Synergistic effect of LinkedIn’s takeover by Microsoft
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by Sanjeev Kapoor 09 Feb 2018

LinkedIn is undoubtedly one of the main pillars of the global social media ecosystem as it is the primary site used by professionals worldwide. As such it is also the most prominent professional network which enables networking with ex-colleagues, potential clients and collaborators. Besides serving as a portal that provides ample professional job opportunities for job searchers it has also evolved as a platform that provides a wealth of learning opportunities. This is enabled by professionals who share up-to-date information about their activities while at the same time discussing them through messages, posts and interest groups.

Back in June 2016, LinkedIn was acquired by Microsoft as part of a nearly $27 billion deal which many analysts considered as a considerable price at that time.  Much was said and written about this deal in an effort to demystify the business drivers that led Microsoft to this move and also to understand what lies ahead. Today, several months after the conclusion of the deal it’s probably a good time to reflect on what happened and separate the true signals from noise.

 

Understanding the Drivers

It’s always difficult to pick up the right time for a good deal but in this case it seems that 2016 represented a good timing for both sides as a result of the following factors:

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  • LinkedIn’s Stock Price Evolution: LinkedIn’s stock price reached $270 in early 2015 but started to go down ever since. In 2016 a 40% drop was observed and LinkedIn’s board estimated that it would hardly bounce back. Hence LinkedIn’s board was very receptive when Microsoft offered a price of $196 per share which was higher than its 2016 valuation yet below 2015’s top value.
  • LinkedIn ad revenues growth slowed down: The above-listed stock pessimism was reinforced with evidence from the company’s sales forefront. In particular, a significant slow-down in ad revenue growth was predicted for 2016 i.e. a fall from 35% in 2015 to approx 10% in 2016. Such a drop would have a considerable impact on LinkedIn’s revenues as ads represent the second highest revenue stream for the platform following sales associated with job search and recruitment. This provided an extra incentive for LinkedIn to consider the deal. Microsoft was in a position to remedy this slow down by integrating their office application with the LinkedIn platform.
  • Microsoft’s opportunity to compete in the social media space: It takes two to tango which means that Microsoft had also a very strong motivation to engage in this deal. Indeed, LinkedIn was perceived by Microsoft as a unique opportunity to successfully compete with Google and other giants in the social media space. The acquisition would not only provide Microsoft with access to over 400 million user base but also with access to their social graphs. On one hand this provided Microsoft with a strong footprint in the social networking landscape. On the other it also allows Microsoft to analyze the social graphs in order to identify channels, leads and opportunities for its existing products.

 

Experiencing the Implication

Overall, the timing was perfect for both Microsoft and LinkedIn to engage in this deal.  The implications of the deal in the business community have not become evident yet. However, we are now in the position to make some assumptions about the medium and longer-term implications:

  • A new data marketplace: Beyond LinkedIn’s stock exchange valuation and relevant revenue streams the acquisition has provided Microsoft with access to an invaluable asset namely LinkedIn user’s data. Following the acquisition, Microsoft has access to large volumes of users’ data (eg: users’ contact data, device preferences, content preferences, organizational affiliations, interests, demographics and more), which it can use in many different ways. As a prominent example, these data can be used for profiling users as they use popular Microsoft applications (such as Office.com apps) as a means of personalizing their delivery and ultimately increasing users’ productivity. As another example these data can provide invaluable market insights to Microsoft’s business partners via LinkedIn advertisements or targeted messages.. At the same time however, it will raise privacy and data protection concerns which Microsoft has to handle in-line with applicable laws and in a way that boosts users’ engagement rather than making them hesitant to expose and share information on LinkedIn.
  • Integrated Recruitment and Talent Management Platform: In an era of talent shortage in many areas (such as digital skills) access to worldwide talent is an important asset. LinkedIn offers access to the largest pool of professionals worldwide. Its integration with Microsoft products (like SharePoint) could yield a unique talent management platform which will enable not only access to certain profiles but also integration with reporting and analytics functionalities. In particular, recruiters will be offered with an instant 1-click access to reports that could boost their recruitment processes. Likewise, integration with MS analytics platforms in the cloud will enable much more comprehensive analysis of skills gaps and identification of growth opportunities for many organizations worldwide. For example, large enterprises will be offered with flexible access to information about the capabilities they lack in order to build and roll out a new product. Overall, while LinkedIn has always been a single-entry point for talent management its acquisition by Microsoft will open up new horizons in analyzing and filling the skills gaps that emerge every day in a dynamic and highly competitive job market.
  • Increased Advertising Revenues for both Microsoft and LinkedIn: Increasing ad revenues was one of the main drivers behind the acquisition. Microsoft will attempt to achieve this target in a way that delivers benefits to its existing product lines such as Bing. The integration between Bing and LinkedIn could help Microsoft drive traffic to its search engine which could increase the relevant revenues from advertising. Likewise, it will make Bing searches more effective as a result of social graphs analysis. This analysis could be particularly powerful in B2B scenarios (i.e. for corporate advertisement) given the wealth of business-related information that is available in LinkedIn.
  • Boosting Microsoft’s Presence in the Mobile and Social Media Market: Following a period of extreme success as a result of it’s operating system and office application dominance in the 90s’, Microsoft had to struggle to secure a prominent position in the internet era. The big return of Microsoft was partly due to the emergence of its excellent cloud-based product lines (i.e. Azure based products). Nowadays, most IT giants are also competing for shares in the mobile and social media markets. The latter has a huge potential as a result of the implementation of mobile-first and social media strategies by most enterprises. In this context, the take-over will boost Microsoft’s ability to compete in these markets. LinkedIn is increasingly accessed by mobile users through their mobile app which can give a big boost to Microsoft’s mobile products and services.
  • Microsoft’s aggressive presence in the e-learning market: As already explained, LinkedIn is also becoming a prominent medium for education and learning. The platform integrates Lynda.com which offers a variety of set of courses and e-learning services. Lynda.com represents a first-class opportunity for Microsoft to stand-out in the e-learning and computer based training markets. This comes at a period where the e-learning and related video courses market is growing at a rapid pace.

 

Overall, the acquisition could have a major impact in the business world as it leverages the human resources and also revolutionizes the learning processes which could provide opportunities for increasing productivity and competitiveness. Currently, it’s probably quite early to judge whether the above-listed predictions will actually be realized. Nevertheless, it’s crystal clear that Microsoft made a strategic move that could set it apart in key markets including advertising, recruitment and mobile services market. Even if our predictions do not materialize Microsoft will hold a strategic position in these markets and will be offered with a host of opportunities for business growth. After all, the process of excelling in IT products and services is a marathon race rather than a short to medium term endeavor.

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