Microsoft and LinkedIn: it just makes sense

Microsoft announced last Monday it was to buy LinkedIn for $26.2 billion: as its boss, Satya Nadella, points out, it’s the most expensive operation the company has ever carried out, and in my opinion, a fine way to show that Microsoft has left the disastrous management of Steve Ballmer behind and is ready to once again be one of the most interesting players on the social media scene.

The price paid is equivalent to $196 a share, a heavy premium, but one that needs to be seen in context. The memorandum that the CEO of LinkedIn sent to employees was titled “LinkedIn + Microsoft: changing the way the world works”, and looks in detail at a key issue: why being bought by Microsoft isn’t the laughing matter it was in 2012, and instead generates a feeling that the two companies fit, and that Nadella’s Microsoft is a place worth working at, and that its objectives are realistic.

In 2000, Steve Ballmer inherited a Microsoft valued at $600 billion, and left it in 2013 worth just $270 million, after having missed out on revolutions such as open coding, smartphones, social networks and cloud computing. In a little more than two years, since February 2014, Nadella has achieved the impossible: he has transformed the company by gradually abandoning out of date businesses like software licenses while injecting resources into new lines of business like cloud computing, achieving a clear second place in an intensely competitive environment. The company is once again of interest, and in this context, adding 433 million users from a well-run operation, prudent in its acquisitions, which will maintain its CEO and independent management, that has sustained steady growth, all seem like a good bet.

Microsoft has gone from zero presence on the social networks to possessing one of the most stable and sustained players: LinkedIn has rejected growth models based on acquisitions, which backfired for competitors such as Xing, to focus on organic growth, buying companies only when it saw that it could convert them into something interesting for its customer base, and that will now continue to do the same with Microsoft’s tools.

LinkedIn and Microsoft’s portfolio of products do not overlap, foreshadowing a future in which the company can offer its users tools on the cloud along the same lines as, clearly targeted at the professional sector with the aim of becoming a work space, a productive area, of being the lingua franca of business. Corporate sales is an area that Microsoft is particularly comfortable in, and that comes from its competitive advantage dating back many years, and that could see the presence of LinkedIn, a highly prestigious network, as a powerful addition.

Why has Microsoft bought LinkedIn? Because it takes it from having no presence on the social networks to becoming a tool that professionals use more and more to meet other professionals, to build their social image, to make presentations (with SlideShare), to read the news through Pulse, to train with Lynda, and many other things. LinkedIn profiles can now aspire to be the new way to manage one’s identity on the web, of a professional and serious nature, far removed from the frivolity of other social networks, and with all that this suggests for a company like Microsoft that had no such position. For LinkedIn, the buyout represents an opportunity to pursue its strategy using more resources and in a more ambitious way at a time when its profits seem to be stagnant and that many people use less and less. For Microsoft, it’s the chance to enter a terrain in which it had missed the train, and where both Google and Facebook have threatened to establish a presence. Now, Microsoft can once again have a strong position in online working methodologies, in corporate applications, and in productivity and communication tools.

The purchase of LinkedIn will be greeted with howls of protest by other companies looking to establish a strong position on the social networks, with Twitter perhaps soon in a screen near you. In any event, this is a textbook example of how an acquisition can make sense for buyer and bought, which is no small feat!

(En español, aquí)