Microsoft To Buy Social Networking Site LinkedIn For $26.2 Billion

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.

Agree? Comments?

Comments

[Chanson de Roland]

So Microsoft just agreed to pay $26.2 billion dollar in value for LinkedIn, an unprofitable company that just suffered a catastrophic data breach. Why would it do that?

Well the answer is in the value of the personal information, the particular type of personal information, that acquiring LinkedIn will contribute to the particular stack of personal information that Microsoft is developing about professionals and other knowledge workers' work and professional and business associations. While not as broad as Facebook or Google's stacks of personal information, it is nonetheless large and is immensely valuable, but especially valuable for Microsoft.

And why is LinkedIn's information about professionals and other knowledge workers so much more valuable for Microsoft than it is for LinkedIn as a standalone company. It is because Microsoft can cross reference and combine LinkedIn's particular type of personal information in ways that will give Microsoft an intimate profile of who each of the user of LinkedIn and its productivity products are, who they associate with, what their needs and wants are as related to their work and careers, and even what projects they happen to be working on at the moment.

It doesn't take much imagination to see the immense value of that, which is so much greater when Microsoft can combine LinkedIn's personal information with its own collection of such information, so the value of LinkedIn's personal information to Microsoft is x times $26.2 billion dollar, where x is some number significantly greater than one. So the value for Microsoft is clear.

What is less clear but just as powerful is the loss of privacy for professionals and knowledge workers. To make this deal work, Microsoft must fully exploit and monetize its new super collection of personal information about workers. It will do that, inter alia, with targeted advertising and marketing of goods and services. Now, aside from the personal loss of privacy and the annoyance of solicitations that one didn't seek, there is the great danger of the loss of privacy about one's work and career and one's client's and customers, as Microsoft will now be able to draw highly accurate inferences about all of those things in their most important and confidential aspects.

As a lawyer, I can tell you that there is nothing quite so exciting as the prospect that either Microsoft or someone, who has licit or illicit access to its data, will be able to infer with a high degree of accuracy what I am working on and/or who I am working for, who my associates are, and what career moves I might be contemplating. And it will do all of this at its discretion for the purpose of maximizing its profits, and with very little restriction, if one accedes to the terms for using Microsoft/LinkedIn's products and services. And Microsoft will seduce or coerce the assent to this collection of personal data by either eliminating the option to purchase its standalone products or by making the terms of such a purchase much more expensive than subscription to its goods and services.

At least with one’s partners and associates, you have agreements and/or duties of loyalty and confidentiality, and with clients, it is in their self interests to keep their secrets. But with Microsoft, one has nothing but the certain knowledge that it will exploit one’s professional information in every way permitted by law to maximize its profits, constrained only by the business risks and risks to its reputation of exploiting one’s professional information in ways that cause manifest harm to its customers.

So now Microsoft’s products, such as its office productivity suite, services, and its new professional networking service, LinkedIn, will be collecting our professional information as we work and network.

Well, at least law enforcement will be happy with this deal, because it will now have a new rich source of information to either subpoena or search and monitor subject to warrant of law.

[George]

Another point of view:

"There is a third acquisition model that in a way is a hybrid of the strategic remix and the private equity models. It’s the Google model – or rather the Alphabet model. In this strategy, the company acquires businesses or technologies that have promise but are still risky, and it nurtures them to see where they lead... It is striking that in his letter to employees, LinkedIn’s CEO cites Google’s acquisition of YouTube as a model for his deal. That acquisition folded YouTube into Google but allowed the video company to exist relatively independently... If that is Microsoft’s intent with LinkedIn, then this deal is the first installment of Microsoft’s own “alphabet.” The company may be creating a collection of businesses that are distinct from each other but support the same broad vision. And, if it works, the collection could expand. Skype, acquired by Microsoft in 2011, would fit this strategy..."

Source:
Is the LinkedIn Acquisition Microsoft’s Attempt to Build Its Own Alphabet?
https://hbr.org/2016/06/is-the-linkedin-acquisition-microsofts-attempt-to-build-its-own-alphabet?

George
Editor
http://ivebeenmugged.typepad.com