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Why Microsoft Likes LinkedIn

 

Tuesday, June 14, 2016

The New York Times

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The New York Times

Tuesday, June 14, 2016

Daily Report
Why Microsoft Likes LinkedIn | So what does Microsoft get for $26.2 billion?
On Monday, the world’s largest software company paid that much for LinkedIn, the world’s premier online job site, reports Nick Wingfield. It is by far the largest acquisition in Microsoft’s history, though not the biggest deal of 2016. That is Shire’s $30 billion purchase of Baxalta, another pharmaceutical company.
Drug company deals are more straightforward though, and the price is usually based on what the acquirer hopes to squeeze out of the products and talent. Technology mergers tend to require a little more imagination to justify their cost.
LinkedIn may have 400 million “members,” as the people who post their job data there are called, but in 2015 it had revenue of about $3 billion, and posted a net loss of $166 million. The year before it lost only $15 million on $2.2 billion in revenue. It is hard to see why Microsoft paid a premium of about 50 percent of Friday’s LinkedIn share price.
But think like a tech chief executive, using the key values of relevance, synergy, data and growth. Microsoft is in the midst of an epochal transition from the time of personal computers and computer servers to machine-based intelligence everywhere, via cloud computing and mobile devices. Where once it owned the desktop, now it strives with the likes of Google and Amazon for a $1 trillion prize, the global market for corporate computing.
At the end of last March, Microsoft had $105 billion in cash, far more than the competition. Spending some of that on a well-regarded cloud company it can transition over to its own enormous cloud system makes Microsoft ever more relevant in this world.
Unlike Google and Amazon, Microsoft already has a large presence in corporate software, and some of LinkedIn’s functions will fit nicely into its human resources and financial planning products. Microsoft is also trying to increase the corporate utility of Skype, the online communications company it bought for $8.5 billion in 2011.
Bolted onto LinkedIn, it could be a means not just of recruitment, but of organizing teams. Much of LinkedIn’s proposition has been that it will be the core of a future in which there is much less lifetime employment and lots more freelancing, consulting and other independent contracting across the globe.
LinkedIn already has probably the world’s best trove of data on the work people are doing and looking for, and one of the best-regarded teams of data scientists in tech. That information and those people will now work with counterparts in areas like online search, gaming and artificial intelligence, or A.I.
Data is not just inherently important these days; it is a key asset for improving the performance of A.I. systems. Big data sets lend themselves to better results (incidentally, a reason many in tech are starting to worry about the data owned by the biggest companies.) Buying LinkedIn didn’t just improve the likely performance of Microsoft’s own algorithms. It took a large potential data resource off the table for Amazon and Google.
That is, in large part, the positive situation — which is how such enormous acquisitions should begin. Now for the hard part of making it all work as planned.
— Quentin Hardy
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