Understanding the Microsoft’s $26.2-Billion LinkedIn Deal

Understanding the Microsoft’s $26.2-Billion LinkedIn Deal

Why did Microsoft even buy LinkedIn? For a deal worth $26 billion, there must be more than just adding to the Microsoft brand name. We believe there’s a lot more to it than what the deal looks like at the first glance.

The Microsoft-LinkedIn deal is not at all about bringing a job-search website under its wings; it is a much deeper play.

The obvious way to approach this is in two parts:
What’s in it for LinkedIn and What’s in it for Microsoft?

Well, starting with the latter, Microsoft would be gaining all of LinkedIn’s employees and it’s movable and immovable resources. These are the things that LinkedIn would be bringing to Microsoft:

1. LinkedIn’s Resources: In terms of professional networking and as a job board space, LinkedIn is the thing, and realistically, it will not be facing any viable competition anytime soon.
   This year’s revenue forecast speculates LinkedIn’s revenues somewhere in the ballpark of $3.5 billion. Microsoft brings in all the data from the present 433 million users, along with the lesser known part of the deal, that is all the historic data from the company as well. The key part, however, is not that Microsoft would be bringing in, the key part is what Microsoft can do with LinkedIn services.
2. Integration of social platform: Microsoft can bring forward an integration of LinkedIn and it’s Office, Outlook, Calendar, and Skype products. Thus making LinkedIn only a click away from any of Microsoft’s signature software. It could even throw in their AI assistant, Cortana, in the deal, and take this professional board space to a whole new level, allowing people to connect seamlessly, with deep integration in the Office offerings.
3. Talent Solutions: Serving mostly corporate clients, Talent Solutions is the biggest sales generator at LinkedIn. It represents about two-thirds of the LinkedIn business, with a growth rate of about 40% per annum.
   This is a specialized service that Microsoft would want lots of yield from!
4. Sponsored Solutions: This part of LinkedIn deals with marketing on LinkedIn spaces, and with a growth rate of about 29% per annum, this is a fast growing bread-winner as well.
   With integration from Microsoft, we can expect this to have better coverage and engagement, as well as generate even more revenues.
5. Com (Component Object Model): It wasn’t too long ago that LinkedIn acquired Lynda for $1.5 billion. This educational and training videos site is seeing notable demand from corporate customers and reportedly contributed over $50 million in the first quarter of the year, towards revenues.
   Lynda by itself is a great asset to have, but there could be more that Microsoft could milk it for.
   Given the fact that most of the top 5 course on Lynda are related to Microsoft products, bringing this into the Microsoft wing would be the perfect fit. It could now be integrated within platforms, giving them an edge once again.

What’s in it for LinkedIn?

Well, for starters they get to retain their brand name, and their work culture, with everything staying practically the same, and the CEO Jeff Weiner retaining his position as the LinkedIn head. He’ll just now be reporting to Satya Nadella, Microsoft’s CEO.

So, last question: Why would LinkedIn even have been okay being bought out?

LinkedIn went big in 2011, with the biggest IPO since that of Google in 2004. But the investors are concerned about long-term growth prospects for the company since it already seems to have reached its peak. Couple this concern with the fact that the company shares have fallen by 42% in the past year. Thus, you have LinkedIn in a position it would rather get out of.

It is a clearly healthy move for LinkedIn shareholders, as this deal makes the company fundamentally a good growth asset with a healthily diversified revenue base. This is the part of the deal that already exists, now let’s concentrate on what can be.

With an over 1 billion user base of Microsoft, the 433-million member LinkedIn can grow rapidly. It can leverage Microsoft’s network to gain new corporate solutions customers, paid premium subscribers, and an overall increase in revenue and users. And LinkedIn could do all this after having their overall marketing costs reducing by making themselves a package deal with Microsoft. The good part is that LinkedIn might not even have to negotiate on that, Microsoft might already be one step ahead on this one.

Now that we know what the deal is all about, and we have discussed it through, let us talk about how Microsoft is appearing to be thinking these days.
The deal seems to be one of the many steps that Satya Nadella, the not-too-old Microsoft CEO is taking to try to revitalize a company that seems to have been left behind by shifts in technology. Microsoft has saturated its market; so has LinkedIn. Together though, they could build new things and create more space for themselves.

The deal has been set in writing and everything else is in motion. But there certainly are a huge number of Microsoft critics that are waiting for it to fall apart, or go wrong. ‘anti-Midas’ of the Silicon Valley is what they call Microsoft now, after a series of bad mergers and acquisitions, and especially after the disastrous deal with Nokia.

While, on the one hand, are those betting against it, on the other are those hopeful and excited.

It would be interesting to watch how this one works out for the both of these mega-brands..

Originally published at Chip-Monks.