By Alicja Gados
There continues to be big news in the social media world these days. A few days ago, tech giant Microsoft has announced it will buy professional job and career site LinkedIn for $26.2 billion US. The deal will mean Microsoft will pay $196 per share. The transaction will close later this year.
This acquisition is the largest in Microsoft’s history. It may be foreshadowing a trend for social media companies that do end up going public, to be consolidated by larger companies. Many social media companies are showing signs of slow growth, and consolidation can help keep them afloat.
About Linked In
The LinkedIn social network continues to grow over the years, and has over 433 million members worldwide. About 105 million unique users visit the platform each month. The platform has reached status as a key recruiting tool for employers and has over 7 million active job postings.
History of LinkedIn
LinkedIn first went public in 2011 and was the first of social media companies to do so (Source: Bloomberg.com). It’s the largest professional network in the world, and it’s also the most valuable. LinkedIn continues to grow and recently released a new version of their mobile app that has allowed it to expand its services and increase engagement with its members. Their latest offering, the online learning tool Lynda.com allows them to access a new market. Lynda.com is an online education company with thousands of video courses taught by industry experts, and is available with a subscription.
LinkedIn has members in over 200 countries, and professional members join at a rate slightly more than 2 members per second! LinkedIn’s fastest growing demographic are students and college graduates, and those are about 40 million or almost 10% of current users.
According the LinkedIn’s press report of 2016 Q1 revenue distribution, most of their revenue comes from talent solutions at 65% or $558 million, 18% from marketing solutions ($154 million) and 17% from premium subscriptions ($149 million) (source: LinkedIn).
What will Microsoft do with LinkedIn?
LinkedIn will retain it’s brand, independence and culture and the current CEO, Jeff Weiner will remain.
With LinkedIn, Microsoft can build the largest professional global network into a large tool for salespeople. This is an area dominated by Salesforce.com, which is a major customer relationship management software platform. It’s also rumored that Microsoft already tried to buy Salesforce.com. Now, it will most likely try to compete with them.
Microsoft plans to accelerate the growth of LinkedIn, and to align it with Microsoft Office 365 and Dynamics. Office 365 is a subscription plan that allows users access to Office applications and other productivity applications that are stored on the web, which you would know it as cloud computing. Productivity services include “Lync” web conferencing and email hosted for business, additional online storage, and more. Dynamics is a line of business solutions, including enterprise resource planning and customer relationship management software applications.
LinkedIn will also give Microsoft a sales channel to different groups, and will give Microsoft a bigger reach for social networking and professional content. Microsoft first started down this road, called enterprise social marketing, with the purchase of Yammer in 2012. Yammer is a professional social networking tool that’s used in organizations. Microsoft purchased it for $1.2 billion, a fraction of what it paid for LinkedIn. So why is LinkedIn so valuable?
Well, with the purchase, Microsoft now owns the social graph from your business, and the professional social graph of the world, among some other data. This is valuable information and why Microsoft has paid such a huge premium for it.
What does this mean for other social media networks?
Many large social media companies, apart from Facebook, have been facing intense pressure in the markets and have seen their stock price fall. LinkedIn, Twitter, Groupon and Yelp are all facing slower growth and less than perfect market performance, due to strong investor pressure. Many think that the consolidation of this generation of companies are spinning down and will be consolidated, as they are having a tough time surviving on their own.
New business model for Microsoft
Microsoft plans to use LinkedIn as an integrated selling tool, including using LinkedIn’s sales navigator to improve the sales cycle with more usable, and richer, data.
The purchase should help Microsoft enter the new era of high quality growth by capitalizing on access to LinkedIn’s rich network. They will likely leverage LinkedIn with their successful software as a service offerings for professional resource planning and managing customer relationships. It will also help them garner new clients for cloud infrastructure, and compete with Amazon, who is currently the leading provider of global cloud infrastructure.
Shift in target customer
Linked in has built a thriving business helping people find work and employers find employees. Microsoft has historically focused on dominating the PC software market, but this acquisition marks a subtle shift in the way they think and do business. Microsoft is slowly becoming a business that mainly sells online services to business customers. In this niche, LinkedIn fits right in, and will help Microsoft deepen these relationships and expand the number of business customers.
LinkedIn is now an indispensable tool to research potential clients and discover job opportunities. While not as exciting or without a mainstream audience like Facebook or Twitter, their audience is certainly valuable. Companies spend a considerable amount of money and effort looking for the right employees. Of this, LinkedIn has the highest repository in the world. The purchase of LinkedIn will allow Microsoft to take that shift to selling business technology services.
Different from historical role
A very successful at selling software for personal computers, Microsoft has faced two big threats in the last 10 years. First, the popularity of online apps has taken the world by storm, and people now prefer using online products such as Google docs and web based email clients instead of desktop software. Then, Apple popularized mobile and smartphones. Smartphones and tablets either ran iOS from Apple or Google Android instead of Microsoft software.
Though the company has lost some market share because of these new technologies with consumers, it continues to enjoy popularity with business consumers. Therefore, it’s choosing to concentrate on this area and LinkedIn is a great beginning of this venture.
Sources and Further Reading
Pacific Biz Times pacbiztimes.com/2016/06/13/microsoft-buying-lynda-com-parent-linkedin-for-26-billion/