Launching its largest acquisition in history, Microsoft is set to reshape the Cloud applications market with the proposed purchase of LinkedIn for $26.2 billion.
The all-cash $196-a-share offer was indicative of the new direction of Microsoft CEO Satya Nadella, who became the head of the PC giant in 2014. Since then, Nadella has embarked on a number of initiatives to reinvent Microsoft, transforming the behemoth into a more partner-friendly organization as well as ridding itself much of the money-losing mobile phone operations that his predecessor Steve Ballmer picked up from Nokia.
Over the past year, Nadella has been focusing on the enterprise applications market by making in-person appearances during keynote events at Dreamforce in September 2015 and SAPPHIRE in May 2016. In both cases, Nadella touted the intrinsic value of Microsoft’s flagship products such as Office 365 in front of tens of thousands of customers of Salesforce and SAP, respectively, arguing that Excel, Outlook and Word are more relevant than ever even as a growing list of Cloud-based content creation, calendaring and collaboration tools from Slack to Youtube have been steering a whole new generation of users their way.
The game-changing purchase of LinkedIn underscores Nadella’s efforts to remake Microsoft by exposing its applications and Cloud offerings in front of the social network’s 433 million members, nearly a quarter of whom are considered monthly active users. In addition, the 1.2-billion Office users could soon post their resumes as well as their creative content on LinkedIn directly from Office 365, allowing for seamless integration between their personal workspace and their professional social network.
A bigger part of Nadella’s strategy lies in how the LinkedIn purchase will help galvanize sales of Microsoft’s Cloud applications. As shown in the following table, the acquisition of Linked will immediately catapult Microsoft to the No. 2 position as it erases the lead of current leader Salesforce after leapfrogging SAP, the current No. 2 vendor.
Microsoft Leaps Ahead Of SAP After Linking LinkedIn
| 2015 Cloud Applications Revenues, $M | |
|---|---|
| Salesforce | 5198 |
| SAP | 2568 |
| Microsoft | 2424 |
| 2351 | |
| Oracle | 1837 |
Source: Apps Run The World, June 2016
These are among the areas that Microsoft will be able to make the best use of LinkedIn’s huge membership base.
- In the HCM applications market, Microsoft will be able to drive its Cloud assets into some 43,000 corporate accounts that have been accessing a range of LinkedIn HR services from recruiting to talent management. In the first quarter of 2016, LinkedIn paid $106 million for Connectifier for candidate management apps that allow for artificial-intelligence analytics by combing through 400 million candidate profiles. That level of information could be a boon for any enterprise client of Microsoft. Office 365, on the other hand, could be bundled into these HR services along with other Cloud services from Skype to Azure.
- In the CRM applications market, Microsoft will see increased synergy between its Dynamics CRM applications and LinkedIn’s marketing solutions, which give salespeople and marketing executives insights into the track records and preferences of LinkedIn’s members, along with metrics like viewing habits and technology adoptions. Jeff Weiner, CEO of LinkedIn who will continue his post reporting directly to Nadella, said it will incorporate its Sales Navigator for social selling into the Dynamics CRM apps.
- For Staffing and Learning executives, LinkedIn has made significant inroads into temp agencies as well as the eLearning segment with the former running its recruiting tools while the latter banking on its 2015 purchase of online education company Lynda.com. Through the LinkedIn purchase, Microsoft will be able to make its products more relevant than ever in front of these staffing and learning users.
On the other hand, the downside for Microsoft is hard to ignore.
For one thing, there will be little economy of scale that the deal could deliver from a Cloud infrastructure standpoint. LinkedIn essentially runs its own cloud with help from Cloud infrastructure providers such as Digital Realty Trust and Equinix.
In 2013, LinkedIn signed a $116 million, 11-year lease for data center space from Digital Realty Trust and it also runs its Cloud through Equinix. Any move to Azure by LinkedIn could be years away.
Even within the HCM applications market, Microsoft and LinkedIn have been operating in two different worlds with the former mostly selling on-premise Core HR apps to its Dynamics ERP customers through a host of ISV partners like Tyler Technologies.
It remains unclear how these partners would want or find an easy way to layer their products on top of the LinkedIn platform. Like Facebook and Twitter, LinkedIn has been resisting the moves by other ISVs to repopulate, let alone reuse, its treasure trove of hundreds of millions of online resumes found on its site.
After more than a decade in business, LinkedIn has grown big largely because of its ability to monetize user-generated content from professionals. It has built a formidable presence in the recruiting segment of the HCM applications market, but it has not shown any desire to venture beyond that because Core HR is not its core competency.
On the surface, combining Microsoft’s Core HR apps with LinkedIn’s recruiting services would make a lot of sense. Still, there’s little reason for the two to coexist because Microsoft’s Core HR is all about personnel administration, compliance and payroll, mostly for backend record-keeping, while LinkedIn has everything to do with the front end of attracting potential candidates and hiring talents.
Then there’s the overlap with each other’s social network approach. Back in 2012, Microsoft acquired Yammer for $1.2 billion in its attempt to expand into the social network space. The acquisition of LinkedIn represents a sea change in its social network strategy, essentially rendering the Yammer assets almost obsolete.
In February 2016, Microsoft unveiled Yammer for Office 365, allowing those who have Yammer license to run it seamlessly within Office 365. Now with the LinkedIn purchase, there is really no need to incorporate Yammer into Office 365.
In the future, the default landing page of LinkedIn could be the morning start for every user of Office 365, Outlook or Skype, greatly enhancing their ability to collaborate, learn and stay on top of events because of the vast reach of the social network. In other words, everything Yammer has tried to achieve, LinkedIn can do it better and faster with greater number of user engagements.
Microsoft’s purchase of LinkedIn is partly driven by the PC giant to boost its Cloud applications revenues and partly done to prevent further erosion in its core enterprise software market, which has been under pressure for the past few years due to Windows sales drops, mobile-phone stumbles, and first-mover advantages of Cloud rivals from Amazon Web Services to Salesforce.
By linking up with LinkedIn in its largest acquisition to date, Microsoft is making it loud and clear about its intentions of staying focused in the Office space and ultimately winning the support of the largest professional network in the world.
