Why Microsoft and LinkedIn are the perfect Tinder match

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Monday 14th of June the news of Microsoft acquiring LinkedIn was breaking all over the global media landscape. I vividly remember the moment, when I was dining at a restaurant in Vietnam and my phone alerted me of the US$26.2bn deal and I got pretty excited since it seemed like Microsoft had done the same assessment as I had in my earlier article about LinkedIn’s Strategy.

On April the 4th, I wrote: “LinkedIn has one of the world’s largest databases of professionals and LinkedIn has collected an unprecedented amount of data, which naturally can be utilized to offer a wide variety of professional service.  Among these services is the Sales Navigator tool that opens LinkedIn to a whole new segment of clients.”

“What investors should assess when valuing LinkedIn is LinkedIn’s move into new and more lucrative customer segments. My belief is that the general perception of LinkedIn as a career portal is heavily mistaken and valuing LinkedIn with that mindset is potentially myopic.”

What I argued in April was that investors were mistaking LinkedIn for a career portal where it really should be assessed as a cloud services company.

Why did LinkedIn swipe right on Microsoft?

LinkedIn is one of tech industry’s most successful executors of the popular freemium business model and has been banking on converting free users to paying premium users. However, the freemium model has limited growth opportunity. LinkedIn has in recent years been transforming its business to become more of a media company, in an attempt to boost ad revenues, which I mentioned as stage 2, in my April article. However, as I wrote, LinkedIn will first become truly profitable when it enters stage 3 and this is where Microsoft comes into the picture.

Microsoft is one the world’s largest providers of business software solutions and has an impressive global sales network and millions of clients. LinkedIn has been struggling with meeting its sales targets and is in great need to boost its sales. Furthermore, LinkedIn is sitting on one of the world’s most comprehensive databases of professionals, but hasn’t managed to build professional services around it, that can be monetized in a big scale. Microsoft is however, an expert in monetizing its services and could very well be the ideal partner for LinkedIn to make its business profitable.

Why did Microsoft woo LinkedIn?

At the announcement of the LinkedIn acquisition, both parties were stressing the many synergies related to Microsoft’s Office products. Microsoft Office suits has been a cash cow for many years, but has recently experienced intensive competition from Google and other open source office solutions. This movement comes as we are changing the way we are using our electronic devices, where more and more is running on the cloud.

The strategic advantage is however, not with Microsoft office, but rather with Microsoft’s cloud based CRM solution Dynamics. It is well known that the CRM space is a lucrative market and Microsoft is already a large player, however, not dominating the playground. Allegedly Microsoft made a US$55bn offer for the cloud based CRM provider Salesforce in the spring of 2015, but the offer was turned down. Had Microsoft successfully acquired Salesforce it would have had a clear market leading position in CRM space. But with Salesforce declining the offer, Microsoft has had to look for other avenues to step up its position in the CRM space.

If you can’t acquire them, beat them!

So, this is my theory: Microsoft has been looking for a deal that could ramp up its competitive edge in the CRM space. When LinkedIn was punished by its investors in February, due to lower earnings expectations; LinkedIn appeared on Microsoft’s radar. What Microsoft saw that investors couldn’t, was the tremendous opportunity to monetize LinkedIn’s database in a way that only Microsoft can do.

With LinkedIn’s database, Microsoft suddenly has the opportunity to give its CRM solution Dynamics a competitive edge. Leveraging LinkedIn’s comprehensive database and its force in social selling, and Microsoft Dynamics can suddenly become the preferred CRM solution in the market. Especially if it can keep other competitors from accessing the same data.

Microsoft payed US$196 per LinkedIn share, equal to a 50% premium, which many commentators has said to be expensive. However, I might argue that they got LinkedIn cheap considering that the stock was trading at US$220+ in January. In January, the market had not factored in the opportunities of LinkedIn becoming a business solutions provider (stage 3 of LinkedIn’s strategy). With this new reality LinkedIn should potentially be trading way above its current US$189,-

Married but sleeping in separate beds!

The announcement stated that LinkedIn would remain a separate entity and LinkedIn CEO Jeff Weiner would continue his work at LinkedIn. This is a strategic wise move by Microsoft CEO Satya Nadella, as the synergies of the deal are not found in optimization of operations, but in a strategic alliance between Microsoft’s portfolio and LinkedIn’s data.

What we are going to see is a wide variety of bundles between Microsoft and LinkedIn’s products. When opting in for Microsoft Dynamics, LinkedIn sales navigator will be an affordable add-on. New professional services powered by Microsoft are going to appear as part of the LinkedIn experience, making both product suits more powerful and lucrative.

Microsoft and LinkedIn could be the perfect match! But like any marriage it requires hard work. For Microsoft to secure a solid return on investment (ROI), it must prioritize 3 important tasks:

  1. Start selling bundled LinkedIn solutions with existing Microsoft products.
  2. Build a seamless integration of LinkedIn’s services into Microsoft Dynamics solution, to ramp up competition in the CRM cloud space.
  3. Finally, develop new and innovative business solutions on top of LinkedIn’s platform, executing on stage 3 of LinkedIn’s strategy, which will make LinkedIn truly profitable.

Should Salesforce and other CRM competitors be worried?

Potentially!  Microsoft’s acquisition of LinkedIn represents great opportunities and if Microsoft successfully integrates the two product portfolios, they can find themselves in a favorable competitive situation. Competitors should access the situation very carefully and prepare themselves to be competing against a formidable CRM solution.

Published by Alexander Hold

My passion for business started young. As a child, I absorbed lessons on business strategy keenly observing my father as he ran his rising startup. As he drove all over Denmark visiting clients, he took me along for company and on the way taught me the fundamentals of customer obsession and sales. As an adult, I combined my passion for business, with a deep desire to explore the world. I left Denmark at the age of 20, and since then have lived in 5 countries: Australia, Norway, Singapore, Ireland and Germany. Everywhere I have been, I have enriched my knowledge on how business is done in that region, what it takes to win the loyalty of local customers, and how to collaborate across cultures. Coming from hi-tech Scandinavia, I have always been drawn to technology. At Salesforce, I consulted companies on how to leverage the technology giant’s products to innovate on behalf of their customers. Today, I spearhead innovation products and programs for the Global Savings Group (GSG), one of Europe's fastest growing tech companies. I advise partners across 19 countries on smart and personalized marketing solutions. I lead and enable teams to bring innovative products to market. Everyday, I am powered by the same passion that began decades ago. Contact me if you’d like to collaborate on leveraging the power of technology to delight customers and empower teams.