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Forget about the meaning of life. The biggest unanswered question this week centers on Microsoft's decision to shell out $26.2 billion to acquire LinkedIn.
What the hell was Microsoft thinking?
No Shortage of Theories
Speculation abounds, from those who see the pending deal as a big waste of money to something that will give Microsoft "an important enterprise footprint to support sales, marketing, service, HR, social business, and potentially even a wide variety of evolutionary IT transformation projects."
Others have theorized it will bolster Microsoft Dynamics CRM with rich data sets, help B2B email marketers with new inbox functionality and interactivity, and arm Microsoft for a battle with Facebook at Work. Yet others attribute the deal to the fact that Salesforce is committing to Amazon Web Services as its public cloud infrastructure.
“I’m not really sure what Microsoft is thinking,” said Tony White, founder of Boston-based Ars Logica, a digital consultancy and advisory firm.
“The synergies are not clear to me. There’s one line of thought that says that, ‘work is splintered — that we have apps and data that remain separate.’ LinkedIn certainly has a lot of data, but how does get leveraged within Microsoft apps? I could see Microsoft making a deeper push into social technology, especially if it wants to resuscitate its Nokia-Windows mobile platform.”
But to some, the deal is crystal clear — especially since Microsoft has a particularly interesting problem it needs to address: too much cash on hand.
"Microsoft's cash-on-hand has steadily risen since 2008 when Microsoft had to struggle with a measly $20 billion (which was still more than IBM or Oracle had at the time) to over $105 billion in cash and short-term investments as of March 31," CMSWire contributor Hyoun Park, an analyst at Blue Hill Research, wrote in a research note.
"Given Microsoft CEO Satya Nadella's themes of cooperation, agility, and focus on enabling better productivity, it seemed like a given that Microsoft was ready to use some of this cash sitting at record-low interest rates to invest in growth."
With the acquisition of LinkedIn, Nadella, who took the reins in 2014, has now made a signature acquisition — the largest in Microsoft history and the third-largest tech acquisition ever. Only the HP-Compaq deal (more than $33 billion) and the expected Dell acquisition of EMC (estimated at $67 billion) are larger.
Park said thepurchase brings the engagement (and data) more than 105 million monthly active users into the Microsoft ecosystem. LinkedIn is expected to remain an independent business with LinkedIn CEO Jeff Weiner reporting directly to Nadella.
Darian Shirazi, CEO of Radius, a San Francisco B2B marketing software company, said the acquisition is "the nexus of customer data and cloud solutions and, for the first time ever, we’re seeing these solutions come together."
“When building predictive solutions that give companies good decision-making power, having high-quality data within your CRM is critical. Microsoft is making a very bold move so that cloud applications will have high quality data,” he said.
Customer Data Is Key
With Microsoft trailing Salesforce, SAP and Oracle in the CRM race, access to LinkedIn’s rich data set of professionals — 433 million total members — is a victory.
"CRM plus rich data is very powerful, and Microsoft just bought itself one of the richest sources of contact data and interest out there,” said Giles House, chief marketing officer of CallidusCloud, a Pleasanton, Calif.-based sales and marketing solutions provider. “Customers crave for you to know them better and be more relevant. LinkedIn presents an opportunity for Microsoft CRM users to realize this goal."
LinkedIn complements Microsoft's Dynamics CRM business, according to Jim Lundy, CEO of Morgan Hill, Calif.-based Aragon Research Inc., an enterprise research and advisory firm.
“And given LinkedIn's Sales Navigator Social Selling Platform, it also establishes a stronger foothold in the Salesforce Ecosystem,” Lundy added. “We would expect to see a bundled offering that combines Sales Navigator and Dynamics."
The ability to tie account profiles with social news, mentions and shares improve a sales rep’s ability to target the right information at the right time, said Sheryl Kingstone, research director, business applications, at 451 Research, a New York City enterprise IT innovation research firm.
Despite its one billion users and dominance among workplace apps, Microsoft could use a boost. Scott Denne, research analyst at 451 Research, told CMSWire. Microsoft wanted to gain access to a source of differentiated features and capabilities for its productivity applications (Office) and its business process applications (Dynamics).
“As different operating systems gain ground in the era of smartphones and cloud-based services offer alternatives to its suite of apps for business users,” Denne said, “Microsoft can no longer rely on the dominance of Windows to sustain its position in enterprise software. Microsoft must find new ways to differentiate.”
LinkedIn CEO's Take on the Deal
Jeff Weiner, CEO of LinkedIn, spoke of some planned integrations in an email to employees:
- LinkedIn's graph interwoven throughout Outlook, Calendar, Active Directory, Office, Windows, Skype, Dynamics, Cortana, Bing and more
- Deeply integrating the Lynda.com/LinkedIn Learning solution in Office alongside some of the “most popular productivity apps on the planet”
- Innovations with the corporate directory, company news dissemination, collaboration, productivity tools, distribution of business intelligence and employee voice
- Creating business opportunities within human capital
- Giving Sponsored Content customers the ability to reach Microsoft users anywhere across the Microsoft ecosystem
- Redefining social selling through the combination of Sales Navigator and Dynamics
- Leveraging LinkedIn subscription capabilities to provide opportunities to the massive number of freelancers and independent service providers that use Microsoft's apps to run their business on a daily basis
“Integrations with LinkedIn offers potential functionality that will be challenging to duplicate,” Denne told CMSWire. “When the two companies are joined there will be multiple ways in which LinkedIn’s member network and the data from that will go into improving Microsoft’s Office and Dynamics apps, as well as other benefits to running a combined company.”
Bracing for Facebook at Work
Maybe Microsoft had Facebook in mind when it promised to spend $26.2 billion this week. Microsoft’s acquisition of LinkedIn is a direct response to the imminent arrival of Facebook at Work, said Richard Edwards, principal analyst at London-based IT research firm Ovum Research.
“With Facebook at Work on the horizon,” he said, “$26 billion is the kind of ‘all-in’ bet that Microsoft needs to win as it takes on the behemoth of the consumer social networking world. The acquisition will provide Microsoft with an opportunity to leverage what it learned through the Yammer acquisition.”
Some agree with the social focus. Alex Zukin and Scott Wilson, research analysts for Minneapolis investment bank and asset management firm Piper Jaffray, reported today that the acquisition signals Microsoft’s desire to be a system of engagement powered not only by productivity but also social connectivity.
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“We also believe that Microsoft views LinkedIn’s deep social graph as a significant data asset that bestows new powers to Microsoft’s enterprise software business as LinkedIn becomes the social operating system that feeds data into Microsoft’s ambitions in CRM, marketing and, down the road, talent management,” Zukin and Wilson wrote. “A set of enterprise software assets powered by professional social data makes for a compelling case to improve outcomes.”
Frank Gillett, vice president and principal analyst at Cambridge, Mass.-based Forrester Research, likes the potential of the social world combining with productivity.
“Imagine that as you work on documents or in email,” he said, “you can get quick suggestions for expertise and relevant stakeholders in context.”
Adam Levithan, project manager with Washington-based SharePoint solution provider Metalogix sees a different parallel with the Yammer acquisition. "Just as the purchase of Yammer guided Microsoft's cloud development, and transparency of their roadmap, I predict that we will see another adaptation of Microsoft's approach to the cloud soon in the new year."
A Boon for Microsoft Webmail
Could this be a win for Microsoft’s email marketshare? As Microsoft has struggled to compete with Gmail, the union with LinkedIn could also drive market share growth for Microsoft’s webmail clients, according to Chad White, research director at email marketing provider Litmus, based in Cambridge, Mass.
He pointed out in Litmus’ latest email client marketing share data, nearly 16 percent of all email opens occur in Gmail, while less than 4 percent occur in Microsoft’s webmail clients like Outlook.com and Windows Live Mail.
The Microsoft-LinkedIn deal “could also offer support and communication enhancements that are very attractive to B2B marketers, helping drive new users to Microsoft’s email web clients and increase market share.”
According to White, features changes from the acquisition may include:
- LinkedIn messaging replaced by Outlook 365
- LinkedIn contacts integrated into Outlook address book
- LinkedIn and SlideShare interactivity within Outlook email inboxes
- Better spam protection on LinkedIn
- Skype and Calendar integration into LinkedIn
“For email marketers, this union could make new inbox functionality and interactivity available that could be particularly attractive to B2B marketers,” White said. “Also, this could be a catalyst for market share growth of Microsoft’s webmail clients and some upcoming rendering and support changes as the integration takes place. Marketers should pay extra attention to how their emails render in Outlook 365 and Outlook.com in the months ahead.”
Microsoft: Becoming Service Driven?
In a nutshell, perhaps Microsoft wants to take a page from Apple’s playbook and move into services.
“Everyone will say this is about Microsoft entering the enterprise social media sector, much the way they bought Yammer to enter the enterprise collaboration space,” said Scott Liewehr, co-founder and CEO of New York City-based Digital Clarity Group.
“Of course, this is true. But it’s not mutually exclusive from other strategies. I think the significance of this is more about Microsoft entering the services space. This is the first Microsoft purchase of a non-software/hardware company that I can think of.”
No matter how luxurious, software and hardware are becoming commodities, Liewehr added. “If Apple realizes that," he said, "then Microsoft surely realizes that.”
Microsoft's Acquisition History
Microsoft certainly has a challenge ahead. It spent this week more than three times its prior largest acquisition price with Skype in 2011.
"The question is, with Microsoft as the owner of LinkedIn, will users and enterprises trust it or will they look elsewhere?” asked Jim Lundy of Aragon Research.
“We suspect given the competitive nature that Microsoft has with many firms, that some will not look at LinkedIn in the same manner that they did before their acquisition by Microsoft. Time will tell, but historically, the Microsoft culture has rejected many of the acquisitions that Microsoft has made. Office 365 Groups is now touted more than Yammer ($1.2 billion), and the Nokia ($7.2 billion) deal was a massive write-off."
Richard Windsor, analyst at London investment intelligence firm Edison Investment Research, told CMSWire that although the deal is expensive, LinkedIn is unopposed in its space.
“To really make the most of this acquisition LinkedIn needs to be seamlessly integrated with Microsoft’s other assets, particularly Office, and this is something that historically Microsoft has been very bad at,” Windsor said. “As LinkedIn will remain independent, it might take a very long time, if ever, before Microsoft could derive the real value from this acquisition and will give competitors like Slack more time to establish and build a presence.”
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