How Microsoft will improve enterprise biz by buying LinkedIn

Microsoft and LinkedIn deal
The US-based software power house Microsoft is targeting to improve revenue from enterprise business by buying LinkedIn.

The deal to buy LinkedIn for $26.2 billion is happening at a time when Microsoft’s acquisition of Nokia phone business and services failed to bring cheers to the software company.

Shares of LinkedIn hiked to 47 percent after the announcement to about $193, while Microsoft stock went down by 3.2 percent.

Software industry analysts are sure that Microsoft is buying LinkedIn not for the purpose of adding immediate revenue from the professional network site. LinkedIn has 430 million subscribers with 10 percent coming from India. Microsoft can offer its solutions to LinkedIn subscribers cutting down on promotions. LinkedIn can also be Microsoft’s immediate answer to Salesforce.com in the global CRM market.

LinkedIn witnessed 19 percent growth to 433 million members universally with the first quarter of 2016 seeing a revenue increase of 35 percent to $861 million but the loss amount surged to $164.8 million from $15.3 million due to increase in costs related to sales, marketing, and product developments.

The revenue for the full year 2016 is predicted to be $3.65 – $3.7 billion, with about two-thirds of LinkedIn’s revenue sourced from its talent-solutions division. The company has also acquired online training video service Lynda.com for $1.5 billion last year and can offer the same to be integrated within Microsoft’s products from now on.

The deal at $26.2 billion is the biggest acquisition by Microsoft and is also the first prominent one to be carried out after CEO Satya Nadella became the lead. Microsoft with 1.2 billion Office users had no social media interface and had depended on the likes of Facebook, LinkedIn, and others for the same till date.

Hence, LinkedIn will give access to more than 433 million members to Microsoft. With Microsoft planning to transform LinkedIn profiles into a central professional profile which can be accessed in Windows and apps like Outlook, Skype, Office.

Google and Facebook have previously tried to make a move into the professional workplace but only LinkedIn has an already set up image of a professional network. Microsoft can now rival with the services provided by the likes of Google and can benefit from the deal if it will market against Facebook and Google Apps being used for professional services.

Also, Microsoft can convert LinkedIn into a major customer relationship management software system for salespeople, and make a move into the space majorly held by Salesforce.com Inc.

The merger is also a result of the comparatively low market of Microsoft and Bing Ads in mobile as compared to Google.  In Q1 2016, LinkedIn reported a total of $154.1 million revenue from its ad segment, registering a 29 percent increase which has been majorly triggered by sponsored content. At the same time, Bing Ads saw its revenue move up by 18 percent in the first quarter, as a result of the widespread adoption of Windows 10.

Microsoft and LinkedIn will host a joint conference call with investors on June 13, 2016 to let out more information on this transaction. Microsoft claims that LinkedIn will have a negative impact of only 1 percent on its adjusted earnings for 2017 and 2018 and will be adding to Microsoft’s per-share earnings in 2019.

Microsoft has been going through many acquisitions in the recent years, like the $9.4 billion deal of Nokia Corp. The company has also entered into a $8.5 billion in 2011 to buy Skype SARL. Microsoft is currently targeting a business circle with its cloud-based services and productivity tools and is moving out of its usual domain.

Vina Krishnan
[email protected]