LinkedIn gets lucky

lucky-pants

Several readers have asked for my take on Microsoft’s purchase last week of LinkedIn for $26.2 billion -- a figure some think is too high and others think is a steal. I think there is generally more here than meets the eye.

Microsoft definitely needed more presence in social media if it wants to be seen as a legit competitor to Google and Facebook. Yammer wasn’t big enough. LinkedIn fits Redmond’s business orientation and was big enough to show that Satya Nadella isn’t afraid to open up the BIG CHECKBOOK.

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A simple financial analysis of the deal shows LinkedIn was way cheaper at $59 per registered member than buying Facebook for $329+ per member (if Microsoft could even afford to buy Facebook). LinkedIn has to expand Microsoft’s overall customer footprint in the business community. Of course Facebook makes money and LinkedIn doesn’t, but I’m sure the Microsoft bean counters saw the simply crazy numbers that add up to losses for LinkedIn ($1 billion per year in R&D for example) and could see how a little spending restraint could quickly turn that loss into a profit.

LinkedIn’s expense numbers are stratospheric and make no sense at all to me.

In his e-mail to Microsoft employees Nadella made a point to explain how novel LinkedIn analytics technology would help Microsoft better solve customer problems. Imagine "a LinkedIn newsfeed that serves up articles based on the project you are working on", Nadella said. "And Office suggesting an expert to connect with via LinkedIn to help with a task you’re trying to complete".

Computerworld made a big point of this algorithmic value for the deal, quoting Jenny Sussin from Gartner: "There were two algorithms [Microsoft] wanted," she asserted. "No. 1 was the algorithm that creates the connection graph, the social networking graph. No. 2 was the algorithm that determines the information most valuable and most actionable to you".

While I don’t discount the importance to Microsoft of these LinkedIn algorithms, I think there’s a delightful irony here that -- as far as I can tell -- both algorithms were acquired last year by LinkedIn when it bought a mobile app company called Refresh. You may recall I wrote a column about Refresh long before the LinkedIn acquisition, explaining how the company had cracked some really hard data problems like determining definitively which Bob Cringely a particular social media feed was discussing as well as the algorithms mentioned above. The Refresh app, which LinkedIn quickly killed, generated on your phone exactly the sort of knowledge Satya Nadella was citing. And the irony? If this is what made LinkedIn worth $26.2 billion, Refresh was the buy of the century since LinkedIn reportedly paid under $10 million for the acquire.

That explains Microsoft’s interest in buying LinkedIn, but why was LinkedIn interested in being purchased? What’s obvious to me is LinkedIn was desperate to be bought by Microsoft. Simply put, LinkedIn’s 433 million users are about as many quality members as the company could expect to get… ever. It was maxed-out.

Compared to Facebook, LinkedIn users don’t live on the service. Few people keep a LinkedIn window open on their desktop, so the ad market is limited. And where Facebook can logically grow to include all 3+ billion global Internet users, LinkedIn (with about a seventh of that 3 billion), has probably already grabbed all the businesspeople -- its stated target user group.

Despite the Refresh-type algorithmic stuff, LinkedIn has basically just been rebuilding its user interface over and over again and spending $1 billion per year doing that. It’s not a very visionary company and certainly not efficient.

In short, LinkedIn was at a peak and really needed a buyer like Microsoft or risk going clearly into decline.

It got lucky.

30 Responses to LinkedIn gets lucky

  1. buchacho says:

    Wow, $1bln a year for R&D is insane. I used to live near where they were building new offices in Sunnyvale and heard about how many employees they had and thought: what a waste / for what? Think they ended up selling the buildings to Apple. Are there other companies in this similar position?

  2. No One says:

    The same purchase as Nokia, if you ask me. The new ceo is the same as the old one. Too bad for Microsoft.

  3. Kevin Cowan says:

    I don't think it's "lucky" for linkedin, and even less so for the site's subscribers. Microsoft has shown that they buy these things to push their garbage software down people's throats. It's the beginning of the end for linkedin, in my opinion.

    • John Chhouk says:

      Yeah ms does have a history of buying something just to kill it off it is tech company 101

  4. LienaP says:

    Did Microsoft spend too Much to Buy LinkedIn? Sure did, for
    all these reasons http://creditrelief.info/featured/microsoft-spend-much-buy-linkedin/

  5. MyDisqussion says:

    I think buying a company which has never shown a profit under GAAP was probably not a smart move for Microsoft. They will never earn back the money they spent buying this company.

    If indeed LinkedIn was maxed out, it may lead to some sort of exodus. It depends upon whether there is an acceptable alternative to LinkedIn, and whether the current members feel that Microsoft will unacceptable access and munge their data.

    The article does mention one other point: LinkedIn doesn't have all the inane chatter that Facebook does. The number of active users is probably far less than the number of subscribed users.

  6. BoltmanLives says:

    Cloud dominance leads to Mobile dominance

    • tasburath says:

      Really?

      Amazon absolutely owns everyone else in the cloud service market, including Microsoft.

      How did mobile phones work out for them?

      • BoltmanLives says:

        Um not so great... but universally Fire Phone was basically a stupid android phone...Windows 10 is different pretty much identified already as the very best mobile os. Combine Windows 10 Mobile with Microsoft clod/bot network and you have the future. The SuperPhone era Mobile 2.0

        IOS and Android are examples of Mobile Smartphone era 1.0...if you cannot see the limitations of the current app eco, there is no help for you. The current app eco will crush under its own weight...unsustainable into the future.

        I see the future clearly and its cloud/bots and universal app platforms.

      • tasburath says:

        To be honest, I thought Windows 8.1 was a better mobile OS than Windows 10. I loved it on my Lumia Icon. I liked it better than IOS or Android, still do. Didn't like Windows 10 that much as a mobile platform.

        Who has identified Windows 10 as the very best mobile OS?

        I currently have an apple iPhone 6s. I got it after my wife got one and I saw the development differences between the platforms on the same apps. It seems like developers release a version on windows mobile and then abandon it as they add new features to their IOS (and I assume android) counterparts. Now we have developers pulling their apps entirely from Windows Mobile.

        I would still be using my Icon and WP 8.1 if not for the app issues.

        It's a shame. If Microsoft had actually invested in Windows phone early on and stuck with it, it would be a completely different conversation. As it is now, Windows 10 mobile is a niche market at best.

      • Tacoman3o3 says:

        Moore's law has been dead since 1999! What era are you living in????

      • Simone Ghezzi says:

        For how much I like Windows (i heven have a Lumia 640 XL as my main device), every time you say Nintendo was killed by Microsoft, I think you don't have any idea about how 3ds is selling (WiiU is not selling good, but it's been clear since the beginning)

    • Tacoman3o3 says:

      Oh shut up!

  7. pi may says:

    they bought LinkedIn for the same reason they bought Nokia, cloud growth had stalled, now they can obscure that for a few quarters, as soon as they start abusing the data, which they won't be able to resist , people will drop LinkedIn in massive numbers, they will never see in a tiny ROI on this stupid deal.

    p.s. don't engage boltman , his a total shilltard troll loser, also watch for another idiot named Ordieth , he is just as bad as boltman. don't feed these troll losers.

  8. Tacoman3o3 says:

    Oh God help us all. I'd better delete my linkedIn account before Microsoft integrate telementary into it.

    • Ordeith says:

      How's your compelled Google+ Account doing?

      • Bob Grant says:

        Completely empty, just like always. Only suggestions are for what is generally popular over the entire service, nothing even remotely close to my likes or history.

        Google's "don't gather my personal info" settings actually work, unlike Microsoft's.

      • Ordeith says:

        Google's "don't gather my personal info" mask the information they are gathering from you so you think they work. They have way to much at risk with that 90% revenue dependency to do otherwise.
        They went from "Track Bob" to "Track Bob, but don't let him in on it".

      • Bob Grant says:

        Do you have ANY proof of this? Everything I've seen and heard that has any evidence at all says otherwise. (conjecture and circumstance aren't proof)

        [EDIT] Not only that, but it would be totally illogical... Their revenue comes from ads, and they aren't serving them to me. Their 'gathered info' is totally useless if they hide it.

      • Ordeith says:

        Their revenue comes from their ability to convert you into a desirable target, and they need your data to do that. Without that data you would be worthless to them.

      • Bob Grant says:

        A desirable target I will never be, and the same can be said for a large portion of their users. They know this, so they don't push them out, but instead cater to both sides. I will never be a desirable target, but I can provide accurate information to others that will allow them to decide if they want this sort of thing. (and there are many that do)

        TL;DR: My data is totally worthless to them.

      • pi may says:

        Ordieth is just a shilltard troll, he will say anything , don't bother with facts, it's doesn't matter, if MS is doing it it's GREAT, everyone else is evil, best not to feed the pitiful troll.

  9. Adam Smith says:

    Thanks for your insights, as always, Robert
    It will be interesting if "LinkedIn" becomes the "MySpace" of this new decade
    I avoid LinkedIn, and will avoid it even more now that Microsoft will have access to personal data
    I am still shaking my head when I discovered that Windows 10 has active advertisements on the Start Menu, and uses telemetry to do data mining of personal data
    Windows 7 looks better every day
    Went to a bank yesterday, and they are still working with Windows XP, with no problems
    Count me out of LinkedIn, and Windows 10

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