On Monday Microsoft announced that it is acquiring LinkedIn — the social media site for business professionals — for $26.2 billion in a cash deal, its biggest acquisition ever. The transaction should close by the end of 2016, subject to regulatory approval in the United States, Canada, the E.U., and Brazil. Microsoft will finance the purchase with new debt.
LinkedIn has 433 million users in over 200 countries but only 105 million monthly average users. LinkedIn will become a part of Microsoft’s productivity and business processes unit but will keep its name and independence. Jeff Weiner will remain as C.E.O. of LinkedIn, reporting to Satya Nadella, C.E.O. of Microsoft.
Negotiations began in January according to the two parties. That also was the time that LinkedIn started making changes in the non-revenue generating groups section, eliminating many features. An outcry from group managers ensued. That, combined with a slowdown in growth, caused LinkedIn’s stock to lose 40 percent ($10 billion) of its value in February.
In terms of profit, the company posted a net loss of $166 million in 2015. Currently, recruitment services are the big sales driver at LinkedIn, followed by advertising.
Why Microsoft Is Buying LinkedIn
In a joint Microsoft-LinkedIn conference call on Monday, Microsoft C.E.O. Nadella said the overall objective of the acquisition is to “accelerate top line growth.” However, Microsoft has a poor record with previous large acquisitions. In 2014 it bought the handset operations of Nokia for about $9.4 billion, but ended up writing off most of its investment. The questions of a few analysts on the conference call indicated some skepticism about the LinkedIn deal’s ability to create synergies.
Nadella spoke about integrating LinkedIn profiles with Windows, Outlook, Excel, PowerPoint, Skype, and other Microsoft products. Additional LinkedIn products will be included. For instance, with Lynda, an online video learning and tutorials portal bought by LinkedIn in 2015, Microsoft will be able to embed videos inside its own software. Microsoft also intends to integrate Cortana, its digital assistant, with LinkedIn.
Microsoft described how it plans to use LinkedIn’s Sales Navigator alongside Microsoft’s Dynamics customer management product to provide “actionable insights” from background information about users to help Dynamics users find leads and close deals. Nadella touted LinkedIn’s ability to provide “social selling” via the information individuals and companies provide in their profiles. Nadella characterized this as connecting Microsoft’s professional cloud with LinkedIn’s professional network.
Microsoft may be overestimating the synergies. In 2012, it bought Yammer, a private social network that assists employees in collaborating across departments, locations, and business applications. Not much came of the acquisition.
While LinkedIn will continue to operate independently, Microsoft will gain access to members’ information related to job searches. Not everybody will feel comfortable with this and Microsoft will have to reassure LinkedIn members that their privacy will be protected. LinkedIn users may also object to having their information used in conjunction with the Dynamics customer management tool and being identified as sales targets by Dynamics customers.
LinkedIn members have criticized the company for its lack of customer service. LinkedIn can’t be expected to extend robust support to those who avail themselves only of free services, but premium subscribers get no better support. Assistance is available online from other members in a community help forum that is full of questions and angry comments from premium members.
LinkedIn has a feedback function that funnels comments to the company but it clearly states that nobody should expect a response. Microsoft is positioning LinkedIn as an enterprise tool. But enterprises will presumably expect a better level of customer service. This would require a significant investment by LinkedIn.
Most of LinkedIn’s members use only the free features, some of which have been eliminated since February. LinkedIn said it did this to reduce spam. Of the 433 million users, only two million are premium subscribers.
While LinkedIn is labeled as a social network, the purely social aspects of the company (group discussions) were never mentioned in the conference call. Since the groups do not contribute to revenue, they may be jettisoned in future. For people who are not looking for a job and do not require premium services, the groups are a compelling aspect of LinkedIn.
If more group features are disabled or the group discussions are eliminated altogether, LinkedIn may lose members. Privacy concerns regarding Microsoft having access to all information may also cause people to leave the network. It will be interesting to see how LinkedIn members react when the sale is completed later this year.