The news of Microsoft purchasing LinkedIn for a whopping $26.2 billion almost feels like a gag from HBO's Silicon Valley. Two companies, each often mocked for being boring in their own way, join together to become a sort of Voltron of dull enterprise synergy. The Clippy/LinkedIn invite jokes pretty much write themselves. Yet dig a little deeper and it's easy to see why the two companies decided to team up. Microsoft has plenty of uses for a robust business social network, and LinkedIn has little room to grow on its own. And there's one big reason this acquisition won't go the way of Microsoft's Nokia deal: Satya Nadella.
In addition to being Microsoft's largest acquisition ever, the LinkedIn deal is also Nadella's largest as CEO, so the pressure is on for him to prove it's worthwhile. But even at this early stage, it's also clear Microsoft is taking a much different approach with LinkedIn than it did with Nokia's phone division or even Yammer. For one, LinkedIn will retain its "brand, culture and independence," according to CEO Jeff Weiner. Compare that to Nokia's device arm, which was forcefully assimilated into Microsoft's mobile group. And while it's certainly a pricey deal, it's also one that has some immediate benefits for Microsoft.
Business intelligence isn't the sexiest of topics, but having one of the most robust data troves out there could do wonders for Dynamics, Microsoft's floundering customer relationship management (CRM) tool. It could be incredibly useful for a Dynamics user to pull up LinkedIn information around its customers on the fly, for example.
"Think about it: How people find jobs, build skills, sell, market and get work done and ultimately find success requires a connected professional world," Nadella writes in his letter to Microsoft employees. "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."
Indeed, Microsoft seems to have more practical potential uses for LinkedIn than LinkedIn itself. It could be integrated throughout Office (especially in Outlook) and potentially even Windows (as developer and writer Paul Ford imagines). Outside of Xbox Live, Microsoft has never had a robust social network and graph to take advantage of. LinkedIn changes that (though it's certainly no Facebook).
Mostly, though, LinkedIn makes sense because it fits right into Nadella's revised mission for Microsoft: "To empower every person and every organization on the planet to achieve more." Again, not exactly sexy, but it's a philosophy that cuts to the heart of a newer, more productive Microsoft. He's not out to control entire industries and crush competition like former CEO Steve Ballmer; instead he's doubling down on the company's strengths.
For LinkedIn, Microsoft offers peace of mind. Despite amassing 433 million users and annual profits over $3 billion, LinkedIn has been showing signs of weakness. Back in February, its stock fell 40 percent in a single day after it announced a lowered forecast for the rest of the year. The reasons for that are varied: LinkedIn's premium subscriptions, its primary source of revenue, haven't been growing as quickly as it expected. Its marketing business can't compete with Google and Facebook when it comes to attracting ad dollars, as CNBC reports. And just like many online businesses, LinkedIn's display ad revenues are also falling.
Weiner admits as much in his letter to employees: "Imagine a world where we're no longer looking up at Tech Titans such as Apple, Google, Microsoft, Amazon, and Facebook, and wondering what it would be like to operate at their extraordinary scale -- because we're one of them." He also asks workers to think of a world where they're not just reacting to "the intensifying competitive landscape," where they're "not pressured to compromise on long-term investment" and where they're not as easily affected by global economic changes.
Basically, LinkedIn has plateaued as an independent company. It has some of the best brand recognition in the world, but it's also a social network you only need when you're desperate for a new job. Most of the time, your interactions with LinkedIn probably involve getting annoyed at unwanted connection requests or the vast amounts of spam the company sends out. Its website is a cluttered mess, and even its redesigned mobile apps feel archaic compared to other social networks. It's hard to imagine how Microsoft could make things any worse.
Sure, Microsoft hasn't had the best of luck with acquisitions lately, which makes me hesitant about getting too excited for LinkedIn. Its $7 billion Nokia deal was a spectacular failure that forced the company to issue a $7.6 billion write-off. It also paid $6.2 billion for the ad company aQuantive, which resulted in its own $6.2 billion write-down. But those were deals made under Ballmer, ones that ultimately led to his ousting. Nadella's Microsoft is an entirely different company, one that might actually know how to use its expensive new toy.
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