Thoughts on Microsoft's LinkedIn Acquisition

There was a time, during the 2000s, when being acquired by Microsoft was the kiss of death for a company. The acquired company would get eaten up, the former employees marginally wealthier but quickly unemployed, the brand disappearing into Microsoft's RGB-colored flag. Nokia has been all but dismantled, Skype is a shadow of itself. The Steve Ballmer era had few success stories. 

Satya Nadella seems to be cut from a different cloth. With the acquisition of LinkedIn (on the heels of the Stock Market devastation in March that hit social media and NoSQL companies hard) Nadella makes the first major acquisition of his watch, and in doing so will likely set the tone for future acquisitions. One thing that both he and LinkedIn's CEO Jeff Weiner emphasized was that LinkedIn would be treated in much the same mold as Instagram (purchased last year by Facebook) and Youtube (acquired by Google in 2006) - a  mostly autonomous child company, allowed to evolve along its own lines, with Microsoft's presence being more of a seat at the table than a tyrant.

LinkedIn has had a great deal of success growing its brand in the professional networking space, with the goal to be the one-stop shop for professionals as they navigate their careers. To that end, they introduced Pulse in 2013, then purchased Slideshare in 2014 and training company Lynda last year. At the same time, their stratospheric growth was putting a major strain on their core services and infrastructure, and intended but unimplemented upgrades and unpopular throttling had led to a general discontent among its heaviest users. This came to a head in March 2016, when their company's valuation was slashed by several ratings agencies, leading to a precipitous stock market loss that led the whole sector downward ... and making LinkedIn a potential buyout candidate.

In the short term, this will likely be a major shot in the arm for LinkedIn, as it gives them the ability to expand staff and infrastructure without having to fend off investors. 

Longer term, the combination of LinkedIn and Microsoft makes a great deal of sense. As the consumer market shift away from Windows based PCs towards tablets, chromebooks and phones, the importance of the business market has only increased for Microsoft, especially for its Office line. Indeed, because of the Slideshare acquisition, Microsoft now has a full "stack" for its Powerpoint product, which is still the leading presentation software in the world.  Integrating the LinkedIn graph with its office products (including Outlook, which could very well develop the same relationship to LinkedIn's display API as Rapportive has with Google's Gmail. 

Longer term, it's not hard to see a Microsoft/LinkedIn alliance becoming a counter to Salesforce (which has been rumored to be a candidate for an Oracle acquisition). Salesforce has focused on professional services, but is weak in the professional social media space. With Microsoft's recent release of its business data analytics tools and the growing influence of Office365, a Microsoft-Linked in partnership here could be challenging for Salesforce within the 3-5 year time window.

Additionally, Microsoft could very readily start migrating LI to Azure, giving LinkedIn a more scalable architecture and capacity while at the same time providing a very nice marketable dogfood story about Microsoft's hosting platform. Combine that with the graph data from those LinkedIn accounts (kind of a rolodex of Who's Who in the tech field) and there's no question that Microsoft is getting some serious value for its money (thanks to analyst Reynaldo Gil for these).

Overall, there are few downsides to the merger of the two companies, especially if Nadella stays true to his word to let LinkedIn operate with autonomy. 

Kurt Cagle is the owner of Semantical LLC, and has both worked at Microsoft and lives in their back year.