Commentary

Cloud Tools And Data Meet Networking. How Microsoft Can Justify LinkedIn's GBP26bn Price Tag

Every now and again, an unexpected acquisition takes place within the social networking space that sounds incredibly expensive but makes perfect business sense. Back when Facebook bought WhatsApp, for example, it was clear that the rapidly growing messaging service’s reach among young, mobile audiences in fast-growth markets was extremely attractive, as was the fact that a lot of social communication appeared to be migrating away from large networks to smaller services and apps. Facebook picked the right service at the right time, helping to justify the eye-watering amount of money it shelled out.

Fast-forward to 2016 and we’ve just seen Microsoft pay an even higher premium for LinkedIn -- one that values the business network at over $26bn (considerably more than its share price had suggested it might be worth). So while Microsoft has not shied away from acquiring services in the past (Skype and Yammer among them), has it been as shrewd as Facebook in terms of the timing and reasons for its most expensive purchase to date?

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Certainly, LinkedIn has some challenges to face. According to our research, LinkedIn might have been experiencing consistent growth in membership numbers over the last few years -- almost doubling its user-base across the 30+ countries we track between 2012 and 2016 -- but it has not always been successful in converting these individuals into regular users. Indeed, among members of the 15 biggest social services and apps which we monitor, LinkedIn has the lowest percentage saying they are daily users. In short, an increasing number have an account on the service, but not all of them are engaging with it as regularly as LinkedIn might like. Recent updates to its app were no doubt designed to tackle that, but LinkedIn has for some time been looking for better ways to engage and monetise its audience.

Brighter news for LinkedIn comes from the consumer-led movement toward more specialised forms of networking whereby people are using an increasing number of platforms but for different activities. While Facebook and Twitter might once have been the go-to destinations for almost all of our social networking actions, recent years have seen activities becoming much more diversified and fragmented. So we turn to Instagram for our photos, to WhatsApp, Messenger and other messaging apps for messaging, and to business services for professional networking. And it’s in this latter area where LinkedIn rules supreme; sure, it has to compete with names like Viadeo and (Microsoft-owned) Yammer -- as well as, to an extent, Facebook At Work -- but there’s no other business network which can challenge LinkedIn’s size and reputation.

Above all, though, it’s the current audience on LinkedIn that makes it so valuable to Microsoft. Although LinkedIn has become known by some as a network for recruiters, among the 15 biggest social services tracked in our data it has Facebook and LinkedIn that have very consistently recorded the “oldest” audiences over the past few years (that is, they have the highest average age among their members). For Facebook, that’s a result of it having existed for over 10 years and its high adoption rates in all world regions -- meaning it’s the network that older Internet users are most likely to have joined. But for LinkedIn, it’s a consequence of the service attracting exactly the type of audience it wants -- one thatour data shows to be awash with senior, decision-making business influencers.

With Microsoft betting big on cloud-based professional software solutions, being able to combine data and services across LinkedIn and products such as Outlook makes absolute sense. In its own words, it can combine the "world's leading professional cloud" with the "world's leading professional network." If Facebook has done exceptionally well in building the ecosystem for personal networking, then this latest acquisition by Microsoft allows it to continue building a professional equivalent which contains Skype and LinkedIn.

The old adage that “Content is King” also rings true on LinkedIn. Across the major social networks, we have seen significant growth in passive behaviours in the last few quarters, with users becoming more likely to read and share articles/stories posted by others and less likely to share details of their own lives. More than almost any other network, LinkedIn will profit considerably from this trend – with its users wanting to consume specialised and highly relevant content from experts or professional influencers. Arguably, in fact, LinkedIn is now a content site as much as (if not more than) it is network for those looking for a job.

Seen in this context, $26bn might still be expensive -- but for Microsoft it could be money very well spent.  

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