At last, with LinkedIn Microsoft sees some sense

Microsoft’s plan to buy LinkedIn makes perfect sense. The question is, what will capitalise on the opportunity?

Microsoft has taken a fair bit of criticism for its planned $26 billion acquisition of LinkedIn. Some assume it’s just another random purchase with about as much strategic thought behind it as the acquisition of Nokia. Remember that one – the idea that they could push out their new mobile operating system by buying a phone manufacturer that nobody bought from anymore. Windows Phone still scrapes along the bottom of the sales charts, with a global market share of about 1 percent and Nokia phones are consigned to the history books.

Others have assumed this latest planned acquisition will see the demise of LinkedIn: “Farewell LinkedIn, I quite liked you” wrote one Facebook friend. Actually, more than a Facebook friend – someone I actually know and have had beers with. A real person.

And this Microsoft acquisition is all about people. Making it easier for individuals to use productivity tools to communicate with others – an area of influence Microsoft can still lay claim to. Like many, I still write in Word, on a computer loaded with Windows 10. I email through Outlook (even though I used a gmail business account) and if I call someone, invariably I used Skype – even if it doesn’t seem like it was in pre-Microsoft days.

I like the fact that in Outlook the social media plugin grabs a photograph of the recipient, along with other recent posts on Facebook or LinkedIn. It will be even better if, as someone changes their email address on LinkedIn, my personal address book is updated accordingly (assuming they provide permission, of course). A subscription version of LinkedIn could sit happily inside the Office 360 suite, providing easier ways to share and extract information. Who knows, they might even improve the rather clunky user interface that LinkedIn is riddled with.

Aside from those integration benefits LinkedIn also creates revenue. It brought in almost US$3 billion last year, double where it was two years earlier. Unlike Facebook or Twitter some people pay for subscriptions. And there’s plenty of upside from advertising, that hasn’t yet realised its full potential.

For revenues of this magnitude, a $26 billion bid doesn’t seem over the top, although, despite the high growth in revenue of late, LinkedIn failed to turn a profit last year. But Microsoft accountants will be able to do the corporate slash and burn job – they call it, “looking for synergies” – and should be able to quickly turn it around.  $1 billion in marketing costs, for example, seems a tad expensive for an online enterprise with direct access to almost half a billion users. The fact that they have to spend so much elsewhere doesn’t show much confidence in their own product as an effective advertising medium.

All that aside, assuming they get costs under control, this can be a very profitable business.

The biggest risk – and this is so big it means it’ll almost certainly happen – is that Microsoft proves to be incapable of delivering the integrated experience that would make sense of the LinkedIn purchase. Sadly, Microsoft hasn’t a great track record on product integration. Take Skype as a recent example. They spent US$8.5 billion buying the VoIP player that had no apparent business model. They created Skype For Business, offered free phone minutes for people on an Office subscription, but there’s very little functional integration. Wouldn’t you expect, for example, a record of calls to appear alongside a contact in Outlook? Shouldn’t there be some call control features – for example, prioritise calls from people you flag in Outlook.

It’s that sort of thing that creates the real opportunity – expanding Outlook to become a more rounded contact management system. You should be able to email from it, call from it and post from it, with a full history of communications alongside each contact. Microsoft already provides contact management systems, like Dynamics, but these tools are sales focused. There’s a big gap for a personal productivity tool that helps everyone keep track of all the communications you have with each of your contacts. LinkedIn could become the heart of that contact database – if you do business with someone, connect on LinkedIn and their details will always up to date.

It makes sense. So long as Microsoft doesn’t stuff it up. Or, more likely, do nothing with it at all.

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