Microsoft makes largest aquisition in its history buying LinkedIn for $26.2 Billion - Ikon POV

What’s the news?

On Monday 13th June, Microsoft announced they would be completing a $26.2 billion acquisition of LinkedIn, with the deal to be completed by the end of this calendar year. This is the largest acquisition made by Microsoft in its history, dwarfing the acquisition of Skype in 2011 at $8.5 billion and the $7 billion paid for Nokia.

This isn’t the first chance Microsoft had to purchase LinkedIn, in 2008 they passed on the opportunity to purchase the platform for $1.5 billion. Driving the price increase has been the steady user growth LinkedIn has seen since 2012, with active monthly users tripling to at 106 million, in comparison to Twitter’s 310 million and Facebook 1.5 billion. 

What are the plans for this deal?

In a joint statement made by Satya Nadella (CEO Microsoft) and Jeff Weiner (CEO LinkedIn) they stated the acquisition of LinkedIn relied on the alignment of two things, “Purpose and structure. On the former, it didn’t take long before the two of us realized we had virtually identical mission statements. For LinkedIn, it was to connect the world’s professionals to make them more productive and successful, and for Microsoft it was to empower every individual and organization in the world to achieve more. Essentially, we’re both trying to do the same thing but coming at it from two different places: For LinkedIn, it’s the professional network, and for Microsoft, the professional cloud.

The actual implications for this deal remain speculation at this point, but for Microsoft to make the most of this acquisition there are several obvious opportunities:

1. LinkedIn integration within the Microsoft business platforms such as Office 365, Outlook and Skype for Business, making this the largest single sign on solution for business globally. This would be hugely powerful for Microsoft allowing them to create an advertising solution that could rival Facebook and Google in scale.

  1. LinkedIn data being used to inform Microsoft product strategy with the new data available, Microsoft now have a lens on potential competitor strategies if they take the time to analyse the structural and organizational changes being made by competitors across the LinkedIn platform.

  2. The LinkedIn content newsfeed goes off platform and across the Microsoft platforms, with these feeds also being populated with relevant Microsoft content, making this one of the largest publishing platforms globally.

What is the short term impact?

In the short term for LinkedIn advertising, nothing. The deal will not be completed until the end of 2016 and even then LinkedIn have publicly stated they would be maintaining their independence. Jeff Weiner stated the only job changes will be to those who had a focus on keeping LinkedIn publicly listed, meaning no merging of sales forces or job consolidation. This is a long term strategy that Microsoft will be taking it’s time to develop.

From a market perspective, the impact of the announcement has had an interesting impact on competitor stock, in the first 24 hours Twitter stock value increased by 8%. Industry spectators are saying that this deal is the potential start of an acquisition uptake across Silicon Valley with Tableau and Pandora named as potential acquisition targets alongside Twitter.

The Ikon POV

Microsoft don’t have the best history with their acquisitions with Nokia and Yammer (the enterprise social network) being the most disappointing in recent years. However, what makes this deal different is both companies are starting out with complementary visions, aligned in both purpose and structure. Supporting the vision, they are both coming to the party with established products with decent consumer penetration there is not a huge amount of initial leg work that needs to be done (unlike Yammer).

In the short to mid-term we wouldn’t be surprised to see a LinkedIn platform revamp as they leverage Microsofts decades worth of UX experience to transform the platform into a seamless, native environment. We feel the most significant impact of this deal is the warning shot to Google and Facebook that Microsoft is back in town and it means business. If Microsoft play this right they have cornered a piece of the market (the business sector) where their competitors have little penetration, they now have a huge amount of business data available to them and for the first time in a couple of years the potential to create advertising solutions that have a real USP for advertisers.

The one question remains, will Microsoft break-even on this record breaking deal? End of year profit for Linkedin in 2015 was $780 million which if Linkedin was to maintain current performance, would see Microsoft breaking even in 2049. However, given Microsofts heritage in enterprise, if they were to focus their efforts in the HR side of the Linkedin business this purchase creates a huge market opportunity within HR services, that could within the next 10 years turn into a $5-10 billion a year product for Microsoft.

For more information please contact:

Sian Whitnall, Head of Digital

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