Rajagopalan V Bengaluru, India

Business Intellects “We Make Success Happen”

Microsoft and LinkedIn – Not an obvious slam dunk

Microsoft recently this June has reached a deal to acquire LinkedIn for $26.2 Billion and not

going too much into whether the shareholders and regulators would approve it, let us assume for

this blog this is a done deal. Yes, slam dunk used here intentionally as the NBA finals where

Cleveland managed to beat the favorites Golden State is still fresh in everyone’s mind. And the title

is relevant another way as well because Paul Allen, one of the founders of Microsoft, owns the

Portland Trail Blazers team.

Microsoft is buying LinkedIn at a price that is about 25% less than its all-time high, but still at a

50% premium from where it is presently. There are about a third of all the global working

professionals as members of LinkedIn. Although we see LinkedIn as more a professional C2C social

network, of late, it has been trying to get into the social space much to the annoyance of the

members already there. For that, the LinkedIn members believe there is a Facebook. What may not

be obvious it that they are already big in the B2B space in terms of recruitment which seems to be

their cash cow today.

Yes, LinkedIn gets most of its revenues through licenses and subscription charges from the

recruitment space with their Recruitment platform and the Talent Solutions offering. It has been

faced with hard reality recently – slowing growth and has been offering weak financial guidance, and

they would have been eager to jump on any sugar daddy that came their way. Salesforce, a CRM

giant, was also in the reckoning to buy them, as admitted by their CEO, but their valuation of

LinkedIn was much lower. By selling at a premium, LinkedIn seems to have made its shareholders

rich given this may have been its only option, as even the ads business was slowing down. Office

365 for Microsoft has been growing well for the past two years and has displaced Google in this

space – a big enterprise cloud play by Microsoft. Ah Hah: Licenses & Annual Subscription + Office

365 = Good Synergy in Business Model? Also their combined strength may also give them better

revenue in the ads space.

When one does the math, Microsoft has paid about $60 for each of the 433 Million members

professional data (mostly), their connection details, their group subscriptions and some of the

personal information that one has shared(contact numbers, education, email etc.). If the premium

was not there, your information was only worth $40 for Microsoft. And Microsoft rightfully feels

they got a steal. Compare it to what Facebook paid for WhatsApp in 2013, $19B for about 600

million users, which works out to approximately $31 per head and that too only for your phone

numbers! Some social network experts said Facebook paid only $2B for WhatsApp users which

works out to $3.33 for each phone number, and 4/5th of the money paid was more out of

“Goodwill”, whatever that means. When Facebook got Instagram the previous year for $1B for 30M

users which worked out to $33 per user for the photos they shared but an evaluation by a leading

bank couple of years later put that value at $80 per user as it had grown well and big under

Facebook (Facebook announced they had 1B active mobile users in Instagram in April 2014). Not

bad for Mark (What a purchase, he can say!), whose main revenue source is ‘ads’ and more the user,

merrier he can be. Once he integrates his acquisition well, a business model would eventually

evolve to monetize the entire user base and they get to strike gold. Remember, there is no such

thing as a free lunch is the old adage and it still applies. Can you and I live without WhatsApp now –

Rajagopalan V Bengaluru, India

Business Intellects “We Make Success Happen”

we are all hooked and addicted which is making Facebook smile. Every corporate need to make

money for their stakeholders and for the rich to become richer, right?

LinkedIn on its own had made some purchases recently – Lynda which offers video tutorials and

training and a great online medium for learning, and Connectifier which uses AI and machine

learning solutions to search for appropriate profiles for talent acquisition. Again, once integrated,

with a solid analytics engine, this can be a money bagger for anyone who has the names, their

connections, what they want to learn, and whom they want to recruit, with all data available open

without any privacy issues as you had built your own LinkedIn profile, viewable to all. And campus

placement would just get easier with the lowering of the age of LinkedIn membership to 14 and the

Student portal available so that students have access to all the best places they want to join.

Recruitment in years to come is never going to be paper resume based, it is purely going to be a

social recruiting through digital profile play – by going digital, we get to see the associations that the

person has, conference and groups (s) he attends and recommendation he may have from previous

bosses and sub-ordinates which may speak a lot about the candidate. Hiring processes can become

very fast and even passive candidates who seem to be better fits can be lured into new

opportunities. Data analytics of unstructured data would make Microsoft guide you what you want

to learn next, whom you want to meet next, what you want to write about to get noticed, and above

all, unknowingly the next job falling on your lap without you even applying for it. In short, if all

works out great, LinkedIn may be the sole or primary Learning and Development, and Recruitment

solution of the WORLD. Whaav... now it is making some sense, is it not? They would wish that

everyone pays them to avail their services.

Microsoft, mapping it back to the 1980s has either acquired companies for the information, data

and content that they possess or to kill a potential competitor that is the wings. They acquired top

software engineers from Xerox to develop their WORD, bought out Forethought which had a

presentation program to develop PowerPoint and bought out Fox Software for their FoxPro and had

Access use their database engine. They acquired Hotmail with 8.5 million subscribers then in the 90s

and integrated them to their MSN services. Their later bigger acquisitions from 2000-2015 like Visio

for their graphics software, Skype technologies for their VoIP service Skype, Nokia for their

smartphone hardware capabilities and Yammer, a smaller version of LinkedIn for their intra-

organization social networking utility have not paid them much dividends. In fact, Nokia acquisition

may have been their biggest mistake to date. Consumers do not want to see a Desktop like UI on

their phones as well and they would like to pick and choose what apps and games they want to

possess and the Store part of the Windows story did not offer them much. With an enterprise

mindset that Satya Nadella comes with, I guess their phone business would just be an also ran but

cloud software and services is where they want to invest and capitalize on.

With LinkedIn, they may have hit a jackpot, depending on whom you talk to. They get a huge free

database of about a third of the world’s workforce, with a constant profile page for every

professional and a reachable email to connect with, and a sense of their network across the world –

they get your digital business card stored which is paper-less and easily accessible, and they can

keep track of you and manage your relationship as well. For now, LinkedIn is their CRM bounty.

They get to build their own bigger CRM around LinkedIn, many of the relationships already coming in

for free. Combine that with the fact that they would own the single biggest asset of the world in

Rajagopalan V Bengaluru, India

Business Intellects “We Make Success Happen”

terms of recruitment and learning and development that you and I have to pay for to use, they are

smiling to their bank all the way. And I am sure there is more to it in this acquisition than what I

can infer as an outsider through this blog.

Just as a baseline, the top four staffing and recruitments companies(Adecco, Manpower,

Randstad and Allegis) generate a combined revenue of about $70 billion and up, and even if LinkedIn

gets 10% of this in the next 5 years, $7 billion revenue is not something to be sneezed at. Talent

solutions (Hiring and L&D) division today generates nearly 2/3rd of its total revenue and is in the

order of $1.9B the year closing 2015 with projections in 2016 to be around 20% above this number.

For a $93B company like Microsoft, adding another 5% to the total revenue over the next few years

would take them to a privileged $100B club just through LinkedIn. They seem to be SMAC on target.

Integration being a challenge in any of these large name companies coming together in terms of

employees and organizations, that apart, once a cohesive story builds up around the combined

entity in the next couple of years, we would most likely see a subscription model that everyone has

to pay for, and they may not be alone with Facebook also likely to follow that route and users like us

are stuck because we need to pay for our addiction for these cloud services. It would not be big

news if they get to invest in some telecom company for their technology and infrastructure so that

they get to rule the way we communicate globally all the way. Google would not be sitting and

twiddling its thumb either– we will have to wait for some action on their front and their story to fall

in place. Stay tuned.

In the meantime back to basketball, we are in the fourth quarter of the seventh game of the

conference finals and the scores are tied. It is time for the real players to make it count and win the

game.

How it all started? On the evening of the day when the news of acquisition came out. I was sipping

coffee with my friend, and asked him a simple “Why”? He drew a blank, just like me, but his wife

sitting next to him who works for a leading job portal said “The value is in recruitment, stupid”. Now

I get it, that too after a week... Whoever said “A woman can never be wrong” is absolutely right!

The author of this blog is a business and technology consultant and a corporate trainer for Business

Intellects based out Bengaluru, India.