Microsoft Corporation announced yesterday its plan to purchase the LinkedIn.com social networking site for $26.2 billion, or $196 per share. The Boards of Directors at both companies have approved the transaction. Microsoft will fund the acquisition with additional debt. The high-tech giant explained the acquisition in a blog post:
"LinkedIn is the world’s largest and most valuable professional network and continues to build a strong and growing business. Over the past year, the company has launched a new version of its mobile app that has led to increased member engagement; enhanced the LinkedIn newsfeed to deliver better business insights; acquired a leading online learning platform called Lynda.com to enter a new market; and rolled out a new version of its Recruiter product to its enterprise customers. These innovations have resulted in increased membership, engagement and financial results, specifically:
- 19 percent growth year over year (YOY) to more than 433 million members worldwide,
- 9 percent growth YOY to more than 105 million unique visiting members per month,
- 49 percent growth YOY to 60 percent mobile usage,
- 34 percent growth YOY to more than 45 billion quarterly member page views, and
- 101 percent growth YOY to more than 7 million active job listings."
128 million (of the 433 million total) users are in the United States. For 2015, LinkedIn's GAAP (Generally Accepted Accounting Principles) net loss was $166 million. In 2014, the social site lost $15.7 million. The company's Talent Solutions business generates the most revenues, followed by advertising on the site and in the mobile app, and then the site's premium subscription service for memebers.
Microsoft CEO Satya Nadella said In an e-mail to staff:
"This deal brings together the world’s leading professional cloud with the world’s leading professional network... I wanted to share with you how I think about acquisitions overall. To start, I consider if an asset will expand our opportunity — specifically, does it expand our total addressable market? Is this asset riding secular usage and technology trends? And does this asset align with our core business and overall sense of purpose?
The answer to all of those questions with LinkedIn is squarely yes. We are in pursuit of a common mission centered on empowering people and organizations. Along with the new growth in our Office 365 commercial and Dynamics businesses this deal is key to our bold ambition to reinvent productivity and business processes. Think about it: How people find jobs, build skills, sell, market and get work done and ultimately find success requires a connected professional world. It requires a vibrant network that brings together a professional’s information in LinkedIn’s public network with the information in Office 365 and Dynamics. This combination will make it possible for new experiences such as a LinkedIn newsfeed that serves up articles based on the project you are working on and Office suggesting an expert to connect with via LinkedIn to help with a task you’re trying to complete. As these experiences get more intelligent and delightful, the LinkedIn and Office 365 engagement will grow. And in turn, new opportunities will be created for monetization through individual and organization subscriptions and targeted advertising."
LinkedIn went public in 2011. Mashable reported about a possible consolidation in the social networking industry. More sites may be acquired:
"Many of the flashy social networks that Wall Street once fawned over — even if it didn't understand what exactly they do — are now looking for the exit door as the mood sours. LinkedIn, like Twitter and Yelp, has seen its stock obliterated throughout much of the year as social media firms (other than Facebook) are experiencing slower growth, and investors are experiencing less patience... In February, LinkedIn stock was nearly halved overnight after a single disappointing earnings report. The plunge was so severe that the company's CEO had to give a pep talk to his team and later gave away his bonus to employees suffering from financial whiplash... Twitter, arguably the second most anticipated social media IPO after Facebook, has seen its market cap fall to less than $10 billion in recent weeks..."
And, there are three related privacy issues. First, LinkedIn had a massive data breach in 2012, affecting 117 million persons. Hopefully, the acquisition will also help the social networking site improve its data security. If not, the profitability slide will likely continue.
Second, it is important to remember that during any corporate acquisition, the acquiring company gets the assets of the acquired company. Assets usually include databases of information about customers, current employees, former employees, and contractors. If you use LinkedIn or did business with the social site and never did business with Microsoft, then Microsoft will soon have your sensitive personal and payment information.
Third, the acquisition reinforces the impression that Microsoft bought in entirely to big data. Like Google, it wishes to collect as much information as possible about as many people as possible. Big data matters, especially to cloud services vendors.