During my time as a corporate executive and a board member, I have been involved in quite a few company acquisitions. I also know a little bit about Office 365 and have been a LinkedIn member since 2008. Even though Microsoft has plenty of cash on hand, the deal is apparently due to be funded by new debt to avoid the need for Microsoft to repatriate profits held offshore and so incur a tax bill. Using debt might also allow Microsoft to charge interest payments against tax, so overall this could be a pretty tax-efficient purchase.
Even taking the financial engineering into account, I am baffled and bemused at the thought of Microsoft spending $26.2 billion to acquire LinkedIn, despite the best efforts of Microsoft to portrait the deal as “reinventing productivity and business process”.
Apparently, the idea is that Microsoft should be able to deliver better intelligence to Office 365 users by mining the information about professional relationships and jobs that has been accumulated by LinkedIn. Based on the experience of using the LinkedIn connector for Outlook, I think there’s some value to be gained here as it’s obviously a good thing to understand as much as you can about the people with whom you interact.
However, I have my doubts too. First, it seems like the greatest value that LinkedIn can deliver is in the case of selling, when salespeople need to know about potential customers, or recruitment, when those who have jobs or those who want jobs desperately attempt to connect with each other. I can’t help thinking that these constituencies represent a small proportion of the overall Office 365 user base.
On the upside, the LinkedIn data should be of great use to Dynamics CRM Online and provide a powerful selling point against SalesForce and other CRM competitors. But again, CRM is only interesting to those in the sales game and Dynamics CRM is not used by every Office 365 tenant (Microsoft says that Dynamics CRM has 8 million paid seats).
Lynda.com might also deliver value in terms of creating a paid-for route to market for video-based training. One of the topics they might care to refresh is Office 365 as the videos available on the Lynda.com site have long since been outdated by the rapid cadence of development that occurs within Office 365. However, Lynda.com is not the only video site that struggles in this respect as Microsoft’s own Virtual Academy illustrates in its use of old (and erroneous) material in MCSE recertification.
All of which makes me wonder exactly how Microsoft plans to extract value from their $26.2 billion outlay. It’s the largest acquisition in Microsoft history and dwarves the expenditure on other purchases like Nokia, Skype, and Yammer, all of which proved to add tremendous value to Microsoft.
The case of Yammer is instructive. Although it has not delivered on its promises of becoming an enterprise collaboration behemoth, Yammer helped Microsoft accelerate progress in changing its attitude to deal with the cloud. Yammer also brought the graph database that is now the Microsoft Graph, a fundamental underpinning used across Office 365 to track user activity and to suggest items that might be of interest to users.
The link between what people do (in the Microsoft Graph) and their professional connections (in the LinkedIn Graph) might well generate some very interesting outcomes, perhaps including the “organizational insights and transformation” that Microsoft predicts. In the same vein, where today Delve is able to show documents to users that it thinks might be of interest, a future iteration might bring people with new capabilities and organizational responsibilities to light. Leveraging the signals gathered from user interactions is something that Facebook does extremely well; being able to do the same but based on user interaction with Office and professional affiliations might cut Facebook’s @Work initiative off at the knees, at least within the companies that have embraced Office 365.
Hopefully the interaction between LinkedIn and Office 365 data will be optional for users. Not everyone wants the contacts in their Exchange account to be accessible by LinkedIn, even if LinkedIn would very much like to access this data (as has happened in the past).
Returning to the business side, the slides shared by Microsoft to illustrate the deal contain some scenarios used to describe the other ways that added value might be created through the acquisition, including a Cortana-powered electronic assistant, an “intelligent” newsfeed, and just-in-time social learning (integrating training into Office).
These are all are worthy enhancements and will be valuable to some percentage of potential customers, but overall I have a hard time figuring out how the return on that whopping $26.2 billion investment will be generated, even if Microsoft expects the acquisition to be accretive to its non-GAAP EPS within two years.
Although some commentators think that LinkedIn represents good value for Microsoft, I am less sanguine. My view is influenced by a reflection that the kind of in-depth know-everything-about-everyone that permeates this deal is socially acceptable in the U.S. and some other markets. It is less welcome in other cultures where personal privacy and respect for the individual are more highly valued.
Microsoft has already experienced some pushback for the kind of analysis about personal workload delivered by Delve Analytics. Imagine the reaction of unions and work councils to the promise that this technology can help companies understand “their employees’ effectiveness (like where they spend time and who they collaborate with)”. That’s just the kind of big-brother is watching you stuff that makes people feel so good about modern technology.
We’re obviously a long way from knowing just exactly how this mega-deal will turn out and the impact it will have on technology. It’s a huge strategic play and I wish Microsoft well with the acquisition. Flawless execution in terms of integrating LinkedIn with Office 365 and other cloud services is required, but even if that happens, Microsoft will need all the luck in the world to turn a dollar on this deal.
You can follow Tony Redmond on Twitter: @12Knocksinna.
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