Microsoft’s deal to purchase LinkedIn at a 50% premium to its share price is one of the largest tech acquisitions in decades.
It will be important to watch how the USD26.2 billion deal is implemented, because the move spotlights two trends with big implications for the enterprise cloud market – and, in turn, for the broader information and communication technology (ICT) ecosystem. Productivity software is now a mature market that needs an infusion of sorts to retain profitability, while social networks are moving into the centre of our professional universe.
Of course, it will take a plan in place and integration that makes sense to culminate in a revenue stream that more than offsets the price tag.
Microsoft expects that the combination of its cloud services and LinkedIn’s professional network provides it with mass target-market availability and speeds its evolutionary shift in focus from software to cloud, where it can better compete with Google, Amazon and others.
That the cloud will be lucrative for Microsoft is an understatement. Gartner reports that cloud spending in 2015 was USD175 billion and it is expected to exceed USD204 billion in 2016.
The challenge for Microsoft has been that, on its way to becoming a cloud-based subscription service, it finds its cloud offerings in an extremely competitive environment with companies that aren’t weighed down by cumbersome licensing. There is a need to combine its cloud to differentiate itself – to offer more. LinkedIn enables Microsoft to access in-depth social DNA data, giving it a competitive advantage on the competition.
It’s said that who you know is more important than what you know, but in this case, Microsoft might have hit a goldmine in both categories. LinkedIn’s database includes the past and present jobs of its approximately 433 million highly professional members, a long list of who they know, how well they know them, and how to connect with their contacts.
Even better, Microsoft will need to do little to keep the data up to date. On LinkedIn, profiles are self-perpetuating, constantly updated by members so as not to miss an employment opportunity, while the algorithms are already in place to make sense of the wealth of information. Today, approximately 25% of LinkedIn’s members use the service no less than monthly, with 50% of users accessing it with a mobile device.
Microsoft stresses that productivity and business process reinvention is the goal of the purchase. “How people find jobs, build skills, sell, market and get work done and ultimately find success requires a connected professional world. It requires a vibrant network that brings together a professional’s information on LinkedIn’s public network with the information in Office 365 and Dynamics,” said Satya Nadella, Chief Executive Officer of Microsoft.
Indeed, LinkedIn will enable users to get more out of current Microsoft products and services such as Office 365 services, Microsoft Offices Graph, its digital assistant Cortana, the Microsoft Dynamics cloud-based CRM and Microsoft Azure cloud platform.
Microsoft will be able to continue its concentration on the enterprise but move the focus of the business itself from the client company to the client’s employees, most of which are already tied to LinkedIn.
In his letter to Microsoft employees, Nadella said: “I can’t wait to see what our teams dream up when we can begin working together once the deal closes.”