Microsoft-LinkedIn seems like the perfect fit, but $26bn is a lot of cash. After the disastrous Nokia affair, is Microsoft making a mistake?
Microsoft’s $26bn acquisition of LinkedIn yesterday stunned the tech world, but is it really one of Microsoft’s shrewdest moves?
On the surface, it looks like a fit, because LinkedIn’s social network of the professional elite is precisely the who’s who audience Microsoft craves and identifies with. The synergies sound perfect.
If you think about the collision of enterprise software and social media springing out a new generation of hot tech companies from Slack to Wrike, Trello and many others, as well as Microsoft’s acquisition of Sunrise and Wunderlist, it makes a certain sense if Microsoft wants to be the No 1 go-to location for all things productivity.
LinkedIn CEO Jeff Weiner, Microsoft CEO Satya Nadella and LinkedIn founder Reid Hoffman
In fact, when you think of the direct sales model, or inbound as it is known, that companies like Intercom and HubSpot are championing, it sounds like a clincher with the world’s best business black book bolted on.
Microsoft CEO Satya Nadella told the troops yesterday: “Think about it: 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 in LinkedIn’s public network with the information in Office 365 and Dynamics.”
But, to my mind, there are still a number of red flags:
1. $26bn – that’s a lot of change
Think about it, $26bn is around a quarter of Microsoft’s annual revenues from established business lines from servers and enterprise software to Bing, Surface and Xbox products, and let’s not forget Office 365. Microsoft said yesterday that it went into indebtedness in order to process the transaction. $26bn is eight times LinkedIn’s annual revenues. Compared with Microsoft’s acquisition of Skype for $8.5bn in 2011 or its disastrous $7.2bn acquisition of Nokia in 2013, this has to work out for Microsoft or it could be lights out. Effectively, Microsoft has paid $196 per share in cash for LinkedIn, a huge premium.
2. LinkedIn comes with its share of problems
LinkedIn’s share offer price of $196 a share is actually down 30pc from a high of a year ago. A growth warning caused the LinkedIn stock to plummet in value. Not only that, but LinkedIn also suffered serious reputational damage due to that nasty security breach in 2012 that is still resonating to this day.
3. It’s a social network, not a unique piece of software; where’s the IP?
You could argue that Microsoft has bought the world’s biggest address book. And while it is no doubt a superbly engineered social network, it is not a software entity – which is Microsoft’s core raison d’etre. Microsoft’s power comes from its dominance of the operating system and productivity worlds. Certainly, the explosion in cloud has shaken that stranglehold and while the vision is to link in LinkedIn with Azure, Skype and Office 365, it’s a bit like trying to stick cheese to a concrete wall. Time will tell.
4. It will operate as a fully independent entity within Microsoft
Okay, this is the line we usually hear with acquisitions of late – a separate entity within. If I spent $26bn on something this separate entity stuff wouldn’t wash. As Microsoft said, it plans to integrate LinkedIn with Azure, Office 365 and other technology lines, how can it do that if LinkedIn operates as a separate entity?
5. Feelings are still running high after the failed Nokia acquisition
When the iPhone was revealed in 2007, Microsoft’s then-CEO Steve Ballmer guffawed at the fact that the smartphone had no buttons. Others guffawed too, including BlackBerry and Nokia. Their leaders had misunderstood the prevailing technology trends and within three or four years all had paid a bitter price. Microsoft tried to rectify its mistake regarding the dawn of the smartphone revolution by buying Nokia for $7.2bn in 2013. Less than three years later Microsoft announced it was cutting 7,800 jobs and had to spend a further $7.6bn to wind down the former Nokia phone business.
Who is to say that Nadella isn’t correct in buying LinkedIn for $26bn? Maybe he has a shrewder grasp of prevailing tech trends than he is being given credit for here. But, with a tech correction overdue, Microsoft counting the cost of misunderstanding mobile and established social media sites reaching peak audience levels, for Microsoft’s sake, let’s hope the LinkedIn buy isn’t a bridge too far.
LinkedIn image via Shutterstock
