On the 13th of June 2016, Microsoft announced that it was purchasing LinkedIn for $26.2 billion in cash and that works out to $196/share, approximately 47% premium over the directly previous trading price of $133. That’s a huge premium considering it has been a substantial amount of time since LinkedIn was anywhere close to their $250/share high on the market. LinkedIn’s market is mature enough though with 422 million users, it has less than one-half of one percent paying subscribers which is an absolutely appalling conversion rate. LinkedIn is already established in numerous countries so expanding their reach farther alone wasn’t going to be useful for them; rather, LinkedIn basically needed something or someone else to take their massive but mostly revenue-free user base and capitalize on it. It looks like LinkedIn has run out of ideas themselves so they decided that selling was the best option left for them.
Was Microsoft the only offer, or were there other bidders?
Microsoft was probably an early contender to approach from the get go. They did try to buy SalesForce and they have also been on a B2B boost for a while now, since their acquirement of Yammer. Microsoft is probably looking for a business base for Cortana and a new user group for Office. But there is nothing concrete of whether or not that is possible with this deal.
Google was probably LinkedIn’s first stop but the giant was plainly uninterested. The addition doesn’t fit well and Google just doesn’t need them, especially at the premium LinkedIn wanted to deliver to shareholders. Any approach to Facebook would have met with the same fate. It’s not likely to know who else was directly involved or interested because the sale wasn’t pitched directly or formally auctioned for bidding.
In the end, LinkedIn did get an incredible offer at $196/share because they are impressive negotiators. The only people ready and willing to pay that hefty price were Microsoft, so it was filed and passed in record time.
Does this new stance put Microsoft in a competitive position in new categories?
While this move is great for LinkedIn, it shows a bit of desperation on Microsoft’s part. LinkedIn looks like it’s going to be mostly a recruitment vehicle with some connections.
Is it to add connections for Cortana placement? It’s possible but that hardly puts Siri-based devices at risk. This move clearly shows that Microsoft is doubling down on B2B. LinkedIn does have the HR factor to it so that’s an area for Microsoft. But HR isn’t really a hotbed for innovations and they don’t have any need for it too. HR problems are usually factors like reading files ahead of time, getting interviewers to show- things that are associated with human error, not sales channel issues. So Microsoft will only end up with those who won’t be able to afford what they offer or can’t use it. Then there’s Lynda, another LinkedIn product that needs some serious cash before it can compete and is a far cry from being the best online learning programs. It boasts of free offers through schools and employers but those same people then have to pay to use other resources that suit their requirements better.
It would have been interesting to see this acquisition about five years ago when Microsoft would have molded the company into better shape and paid something more reasonable for it as well. As is, it looks a lot like Microsoft is showing their fear of slipping into obscurity and this move is just to show that they are still players.
Is the post-merger culture fit a concern?
The answer is yes. While not being particularly aware of the culture of these two companies, culture fit is the single biggest problem when it comes to the success or failure of integration of two companies in any industry. The scenario with these two companies is no different- one being employee and customer experience focused and the other much less so.
This is also one of the biggest issues when those young, budding startups get snatched up by bureaucratic super-companies. They want the key hires and the technology but forget to consider if the technology can be integrated well, if the people who can do that even want to stay and what needs to be done to make that happen. There’s usually a lot of thought around the technicalities of the deal, but not much around the employee and executive satisfaction of it.
At the end of the day, it all depends on the local (or national, depending on how far they can go) economic environment. It won’t be good to see LinkedIn sold for parts and shelved but that could happen as well. It’s also a good time for a better networking system to come in to the playing field- one that people will actually want to interact with and one that is a much better and reliable business model. While it’s true that Microsoft doesn’t have a great reputation as an integrator or as an entity that develops companies after acquisition, you never know if they’ll pull it off this time because there’s certainly both incentive and talent for this to be a stellar merger. We’ will just have to wait and see what happens in the next few years.