Microsoft and LinkedIn: Nadella spends like he means it

To pay $26.2bn for a social network that has failed to grow its income may be poor judgement – but Microsoft’s plans are far-reaching

Microsoft CEO Satya Nadella has spearheaded the software company’s largest and riskiest acquisition with the $26.2bn takeover of the LinkedIn professional social network. The deal is more than three times what Microsoft paid for Skype in 2011 ($8.5bn). 

And now that the 2012 $7.2bn acquisition of Nokia’s mobile division is being scaled back, with the loss of 1,850 jobs, Microsoft is looking for a new area to focus its efforts.

Certainly its leader does not appear to be pushing the Windows platform as much now. When Nadella took over at the helm in 2014, cloud and mobility were the main messages that came across in his inaugural speech.

Since then, the company has launched Windows 10, evolved the Azure cloud and Office 365 product lines, and most recently, it has effectively killed its mobility strategy.

Strategic move

Microsoft is no longer pushing a fully integrated software stack to compete with the iPhone and iOS. Instead, it has acquired a social network for business people with 433 million members.

“When we talk about Microsoft's mission and we talk about empowering every person and every organisation on the planet to achieve more, there is no better way to really realise that mission than to connect the world's professionals to make them more productive and successful,” Nadella said in a transcript of the analyst call about the acquisition, which was posted on the Seeking Alpha financial blogging site.

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Nadella’s goal is to drive product usage and engagement across LinkedIn, Office 365 and Dynamics. “That really truly becomes the core of what Microsoft does. And we'll accelerate that engagement and usage through a variety of different business model subscriptions for individuals and subscriptions for organisations, as well as advertising. So that's really the opportunity ahead,” he said in the call.

According to Livingstone partner Daniel Domberger, the deal between the pair could transform the way people work. “Microsoft is prepared to go back to its roots and bolster its original mission: to empower every person and organisation to achieve more,” he said.

Both Microsoft Office and LinkedIn are synonymous with professional business, added Domberger. “Aligning Outlook, Office 365 and Exchange with LinkedIn’s huge data network is the key to unlocking the potential here – providing technology and services both to enterprises and to the people working within them. It may also finally deliver Microsoft some meaningful social capability.” 

Capgemini head of alliances Anne Cave-Penney believes the acquisition represents a shrewd move by Microsoft to bolster its Office 365 cloud offering. “Increasingly, social media tools also proved indispensable, enabling workers to connect and build professional networks,” she said. With its acquisition of LinkedIn, Microsoft opens up the possibility of integrating its Microsoft Office software with the professional networks that LinkedIn facilitates.

“By weaving these offerings together, professionals could share contacts and calendars, and enable workers from different businesses to find out more about each other before they meet up. This will result in improved efficiency, and an increase in businesses joining forces.”

Connecting social data with CRM

In Forrester’s Quick Take: Microsoft Bets on Social to Transform the Business Customer Experience report on the acquisition, Forrester analyst Mary Shea noted that through the tie-up, Dynamics could become a more attractive customer relationship management (CRM) package in the business-to-business (B2B) market.

Microsoft Dynamics gains an important competitive advantage over Salesforce, since both companies had equal access to the LinkedIn Sales Navigator widget previously,” she said. 

The planned development of a proprietary and tightly integrated Dynamics/Sales Navigator offering will be compelling for B2B organisations looking to optimise their social selling efforts – as will the improved access to LinkedIn profile data, which is a valuable source of targeting insights for account-based marketing, one of the most significant trends in B2B marketing right now.”

The idea of connecting social data with CRM is “manna from heaven” for sales management systems, according to Mark Skilton, professor of practice in the information systems and management group at Warwick Business School..

While this acquisition is mainly about recruitment, Nadella wants to redefine processes.
Mark Skilton, Warwick Business School

He said that since LinkedIn’s revenue is in talent management, it is entirely possible for Microsoft to combine its own internal Yammer social network with external data harvested from LinkedIn profiles of staff to enable managers to find people in their organisations with the right set of skills.

For Skilton, LinkedIn has the ability to punch above its weight. “There is a great synergy between the two. Microsoft has the corporate footprint, but lack social connectivity,” he said.

Microsoft is focused on enterprise cloud, and social media is starting to be part of the business model, added Skilton, referring to “the rise of social in the enterprise with Facebook and Salesforce Chatter”. He predicted that Microsoft would use Dynamics CRM, Skype and Yammer to support a digital workforce.

“While this acquisition is mainly about recruitment, Nadella wants to redefine processes. There is a lot of convergence in how to make the workforce more connected,” said Skilton.

LinkedIn is Microsoft’s biggest acquisition by a long stretch. Over time, the company’s strategy, outlined by Nadella, may well become more social. What Microsoft gets instantly, however, is 433 million social users and the potential to experience high growth. 

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