You just never know what you will wake up to on a Monday morning in the world of high-tech.. So it was with a bit of surprise that I awoke to hear Microsoft was acquiring LinkedIn for $26.2 billion. Perhaps the top business social network on the planet. There has been growing speculation on Wall Street of increased Merger and Acquisition activity. This will certainly kick-start things in a big way. This is no doubt a bold move by Microsoft that will either pay off handsomely or falter like so many acquisitions have in the past. It raises a lot of questions but provides few answers.
Microsoft’s history of buying companies is not great, but at the same time not a complete disaster. Some were high-profile, such as the attempted hostile takeover of Yahoo. As big as the LinkedIn deal sounds, the offer for Yahoo was close to $45 billion. Thankfully for Microsoft shareholders Jerry Yang was an idiot and Yahoo rebuffed the offer. Currently Verizon and AT&T are bidding for Yahoo’s assets, but it sounds like they are coming in at under $6 billion. So let’s make it clear and throw Jerry under the bus and when we are done make sure to back up and do it again. There have been other not so good deals for Microsoft like the $6 billion for aQuantive and as documented in my last blog the $7 billion for Nokia. Yammer for $1.2 billion was not great, it was ok technology but to add yet another social network to my life was just not in the cards. On the good side the acquisition of Skype for $8.5 billion has worked out pretty well
When the Skype deal was done people were surprised but I think why that deal worked out was there was a lot of potential and a lot of synergies and growth opportunities. Microsoft had Office Communication Server which was targeting the business community while Skype was popular in the consumer space. There was great opportunity to embrace and extend OCS and leverage the brand name of Skype. In any acquisition you are looking for synergies that allow you to improve your existing product while allowing you to capture new revenue streams. This will be the ultimate test for Microsoft’s acquisition if LinkedIn. Skype was an example of something that on the surface could have gone horribly wrong and was harshly criticized at the time, but in actuality it has worked out very well for Microsoft.
Microsoft does bring some things to the table for LinkedIn, namely infrastructure. There is a lot of capacity in the Microsoft data centers that span the globe. This will allow LinkedIn in not to have to spend so much time building out or leasing data center space. Microsoft mentioned they will be able to leverage their own assets like Office 365 and Dynamics. I know there is a plan or at least an idea here, I am just not sure what it is or what it will look like. Could this be a channel play? Perhaps. The good news though is Microsoft is all about the cloud and LinkedIn lives in the cloud. Finding new ways to promote and distribute your software is important
Another interesting aspect of the deal is that LinkedIn will operate as an autonomous entity. It will not be subsumed into a Microsoft business or product division. This will be somewhat new territory, but given Microsoft’s track record with previous mergers this should be a positive story. Having a Microsoft field background I think this will simplify the life of Microsoft field based reps as I am not sure how they would incorporate or up sell their customers, let alone be compensated for their efforts. There is enough noise in the market place I am not sure more will be needed.
Some things I hope Microsoft can do is restore some of the dignity back to LinkedIn. I know LinkedIn, being a public company, is always under pressure to show growth. However there is just an increasing amount of personal junk bring posted to LinkedIn that it is becoming too much like other social networks with a lot of noise that it is hard to get the value out of the platform that you need or desire. I already suffer from an overly politicized Facebook account. I am not sure Facebook is helping or harming my relationships. I would like to keep LinkedIn professional.
At the end of the day $26.2 billion is a lot of money and Microsoft’s ability to recoup that investment will be what defines this acquisition as a perceived success or failure. I am not fully on board yet with this acquisition, as I am not perceiving the direct impact to new revenues for existing Microsoft products and all wonder if the idea of LinkedIn as a separate entity is the right thing. I am also on the fence as to whether Microsoft can properly execute this acquisition. It makes it look like Microsoft will act as a holding company or perhaps move to operate more like Alphabet (Google). As usual following when it would like to be leading.
With all this being said it is a bold new world we live in and to succeed you need to be able to take risks, knowing than through failure will come success. Microsoft may be out in front of something here and it will be interesting to see how and if its primary competitors react. No one reacted when Google purchased YouTube, in fact most industry pundits criticized the deal, but it has paid off in spades. As I wrote I am on the fence with this deal, but it is bold and that I cannot fault. If in 5 years we are looking at $10 billion in annual revenues we will cheer, if not well we can just add to the list.
Good Night and Good Luck
Hans Henrik Hoffmann June 20, 2016