Microsoft Corporation and LinkedIn Corporation just announced on Monday, June 13, 2016, that they have reached an agreement according to which Microsoft will acquire LinkedIn for $196 per share in an all-cash transaction estimated at $26.2 billion.
LinkedIn will still hold onto its popular and distinct brand, culture and autonomy.
The transaction is expected to close before January 2017 and Jeff Weiner will remain CEO of LinkedIn, according to Satya Nadella, Microsoft’s CEO.
Reid Hoffman, chairman of LinkedIn’s board, co-founder and controlling shareholder, Weiner and the whole board of directors unanimously approved this mega transaction.
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Hoffman also described the deal as a re-founding moment for the company. Weiner added that the relationship with Microsoft and the combination of their cloud and LinkedIn’s network gives us a chance to change the way the world works. After the deal was announced, LinkedIn was valued at $24.68 billion. Hoffman’s share is about 10.9 percent of the company shares, which is estimated at more than $2.69 billion.
December 2002, Perfect Time to Launch
LinkedIn launched 13 years ago when the worldwide recruiting market needed a professional social network. LinkedIn is headquartered in Mountain View, California, with offices in Omaha, Chicago, Los Angeles, New York, San Francisco, Washington, Milan, Munich, Stockholm, Singapore, Madrid, Hong Kong, Japan, Australia, China, Canada, Dubai, London, Dublin and Amsterdam.
In March 2016, the company had around 9,200 employees and approximately 400 million users in December 2015. The company provides a social network option for finding professional connections, sharing resumes, endorsements and potentially finding new posts. LinkedIn launched in October 2012 The Influencers Program which brings together more than 400 of the world's top influencers to share their professional knowledge with LinkedIn's members.
LinkedIn's CEO, Jeff Weiner, previously worked as EVP of Yahoo! Inc. and before that, he was VP of Warner Bros. Founder Reid Hoffman, previously CEO of LinkedIn, currently Chairman of the Board of Directors.
Over the years, LinkedIn was funded by several capital ventures including Bessemer Venture Partners and the European Founders Fund. LinkedIn reached profitability in March 2006. Through the beginning of 2011, the company had received over $100 million of investment.
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No.1 Professional Network
LinkedIn is the world’s largest and most valuable professional network. In 2012, 93 percent of all companies on LinkedIn used the platform for recruiting new hires.
Over the past year, LinkedIn has launched a new version of its mobile app that has generated increased member engagement. The organization enhanced the LinkedIn news feed to deliver better business awareness. They also acquired a superior online learning platform: Lynda.com for $1.5 billion to enter a new market. Macro strategies like these generated increased memberships, engagement, and financial results, specifically:
The LinkedIn team has grown a fantastic business centered on connecting the world’s professionals, Nadella said. Together we can accelerate the growth of LinkedIn, as well as Microsoft Office 365 and Dynamics as we seek to empower every person and organization on the planet.
Beside Lynda.com, LinkedIn also acquired several web applications such as Connectifier, Refresh.io, Bizo, a job search startup named Bright for $120 million. Back in 2010, LinkedIn acquired San Francisco-based Choice Vendor, a startup that provides ratings and reviews of “business to business” service providers in more than 60 categories across the United States and many more companies, usually startups. In just a few years, LinkedIn has been carefully acquiring different companies that will either help expand its growing professional content network or its products and services.
Revenue Generating Strategy
LinkedIn generates profit from several sources such as customized corporate pages on LinkedIn, users and resumes database access, job ads, pay per click campaigns, job seekers and “LinkedIn Talent”. Some features can be used on pay per use model like InMail etc. If you are a sales professional, for instance, LinkedIn is a viable way to learn about both potential clients and new job opportunities.
In the last quarter, LinkedIn took a modest loss, but like other tech companies, it usually prefers an alternative mechanism of estimating profits that exclude the value of employees’ stock-based compensation. The result: a hefty $99 million in profits.
How Does It Affect Us?
Nadella mentioned that Microsoft will accelerate LinkedIn's growth, but if we analyze Microsoft's recent history in doing multi-billion dollar deals, we will see that this statement is not very encouraging and Microsoft could end up increasing service costs or even worse, cutting down workforce in the following years.
For instance, let's take Nokia which was sold for about seven billion, about 80 percent written off. Skype was bought for eight billion, but loses money and nothing really to show for, aQuantive was bought for 6 billion and Microsoft's online advertising business has remained unprofitable since aQuantive acquisition.
Without being pessimistic, but if we take into consideration the large number of companies that rely on Microsoft technology even more people could be affected in case this deal turns into a fiasco. On the other hand, if LinkedIn acquisition proves to be successful and the odds are in Microsofts's favor this time, as LinkedIn is already profitable, both companies will evolve, recruit more specialists and invest in research and development.
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There are many ways Microsoft and LinkedIn will strengthen each other’s products. One example is the fact that LinkedIn offers a Facebook model newsfeed to its users. Microsoft plans to integrate this newsfeed into Office 365 infrastructure, allowing users to track their professional network while working on group projects.
This acquisition represents one of the most meaningful steps in Nadella’s effort to reinvent Microsoft from the leading PC software maker to a company that offers business technology services more generally. This way they expand their horizons, getting a piece of the action in adjacent industries and also promoting existing Microsoft services to more than 400 million potential clients.
There is nothing to suggest that LinkedIn’s shareholders will vote against the acquisition, after all, the deal doesn’t seem too bad for them, but if they reject it, LinkedIn would have to pay a termination fee of $725 million. Eventually, I guess we all need to get familiar with LinkedIn, a Microsoft company.