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Microsoft buys LinkedIn: making sense of a blockbuster deal

While most of the Microsoft-centric world was gearing up for a day filled with all the latest Xbox had to offer, and the non-believers got similarly ready for Tim Cook’s keynote at WWDC, Microsoft CEO Satya Nadella had other ideas.

Instead of letting Xbox carry the day, Nadella blew the tech news cycle out of the water with a blockbuster announcement: Microsoft was buying LinkedIn, for $26.2 billion in cash.

Microsoft stocks dropped about 2.6% from Friday’s close, but LinkedIn, which had just reached out and grabbed the golden ticket, jumped some 46% on the news. Even Twitter, a company with a similar timeline to LinkedIn (media darlings, rapid growth since cooled off, scrambling for new ideas), jumped on the day, rising from its $14 Friday close to $15.23 before coming back to earth somewhat and closing the day at $14.55.

Microsoft, for a change, bought an American company this time, unable to utilize its sizable stash of offshore cash, but is borrowing money instead of paying cash outright so as to mitigate the tax burden, and yes it’s all perfectly legal. But when you’re paying out twenty-six-billion-dollars, not paying any more than you need to in taxes makes sense.

There are a number of reasons why it made sense for LinkedIn to sell, including a falling stock price and some lackluster ad sales, but Mary Jo Foley may have hit the nail on the head when she said that “it’s all about the data.”

In fact, some pundits noted that Microsoft could have had LinkedIn back in 2005-6 for $25 million instead of $26 billion. But back then, Facebook wasn’t even public, and hadn’t built out or learned to capitalize on its “graph,” the connection of users to information about themselves and others. Since then, Facebook has pretty much cornered the market on that graph of user data, with the notable exception of LinkedIn.

For Microsoft, LinkedIn’s data is potentially even more valuable than Facebook’s, because instead of just knowing what you “like” and where you’ve been, LinkedIn data knows what you do, how well you do it, and, well, who you’re linked to.

LinkedIn profile connecting to all of your Office apps.

LinkedIn profile connecting to all of your Office apps.

This kind of information is potentially hugely powerful, and Microsoft, with Office 365 and products like Delve and the Office Graph, have already done the plumbing to be able to connect rich information about users in ways that simply have never before been possible to the scale that Satya Nadella and Microsoft envision.

Of course LinkedIn’s current businesses, including premium subscriptions, native advertising, and recruiter and referalls products and pulling in some $3.7 billion a year have to figure in to Microsoft’s bottom line plans for LinkedIn as well.

Microsoft LinkedIn

Microsoft’s Professional Cloud

Microsoft talked with this acquisition about the “professional cloud,”, where instead of a commercial cloud connecting companies together, this professional cloud instead links information workers together. And for IT workers, merging Microsoft’s Office and LinkedIn is going to leave Apple and Google, and even Facebook out in the cold. Listen to what Workforce Magazine’s Rick Bell says about LinkedIn:

I won’t argue that Facebook is the social media go-to site. But from my little corner of the HR world, despite those who contend that Mark Zuckerberg’s creation is a valuable business tool, Facebook isn’t where I’m conducting my business. That is, unless I want to check out who was at my cousin’s wedding over the weekend.

If I want a quick glimpse of a potential source, assess a speaker for an upcoming conference or I’ve received a pitch to cover a new CHRO at Company XYZ, I’m not scoping them out on Facebook. Twitter ain’t my go-to, and honestly, I don’t care that this person just shared a molasses-infused banana bread recipe on Pinterest.

I’m checking them out on LinkedIn.

So for Microsoft to gain access to LinkedIn’s data graph and gain a giant leg up on Apple and Google in the workplace, to now be able to integrate LinkedIn profiles into every aspect of Office and Office 365, and to further solidify Microsoft’s position as the clear leader in productivity software and services, yesterday’s deal makes lots of sense.

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Would you have spent $26 billion on LinkedIn?