Why LinkedIn’s Acquisition Makes Sense For Microsoft

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LinkedIn is going to be acquired by Microsoft in an all-cash deal said to be worth about $26 Billion dollars. That is a huge payout for the investors in the social media platform that is actually older than Facebook.

It remains to be seen whether Microsoft is able to turn this acquisition into a bigger success than its earlier ventures, however, on paper, the synergy between the two companies seems to make sense. LinkedIn as a social network is often ridiculed and even reviled but almost everyone has an account because it is seen as something that may land you a job one day.

LinkedIn also had a steady revenue stream from headhunters who were paying for premium services to be able to get complete access to profiles and get in touch with potential recruits. The stock of the company has almost halved from its peak, a trend that started when its own investor guidance call stated that the potential of its advertisement was limited.

That day the stock of the company fell by 40%.

LinkedIn also tried to pivot and become another social network that people would want to spend their time in and not just be present for professional reasons. A news feed similar to what we see on Facebook was introduced with a focus on sharing work achievements and milestones.

Needless to say, it was an unmitigated disaster. The company was making close to a Billion dollars per year, a healthy amount for a social network that is struggling to gain the same traction with mobile advertisers, but it still lost money operationally in the last three years.

By all measurements, LinkedIn is a company that is struggling. So why would Microsoft want to buy it?

The most obvious reason seems to be the fact that it will be able to integrate Office 365 or even into Windows to increase its usefulness to people. The less obvious one which we think Microsoft sees is that LinkedIn may have been struggling, but it does not have any direct competitor that could replace it.

The problems Microsoft had with Nokia and now Skype stem from the fact that these companies were in a hyper competitive environment and even having Microsoft’s money behind them was not enough to turn things around.

Skype is very much still around, although it feels like a remnant of the last generation that the current users are completely bypassing for different services.

With LinkedIn, Microsoft could actually make a compelling case for increased value to customers as it integrates it into all their products. It could also turn LinkedIn into a collaboration platform instead of just one where connections are made.

LinkedIn was ripe for a takeover, especially after its share price dropped to a more realistic valuation. Microsoft has the tools and the vision to make LinkedIn better than before while mining its data for its own purposes as well.

In spite of the Redmond Behemoth’s chequered takeover history, we have a feeling that LinkedIn might play out much better than most people expect it to.

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