Ann Arbor Area Business Monthly
Small Business and the Internet
Microsoft Buys LinkedIn - WTF?
June 2016
By Mike Gould
"A billion here, a billion there, pretty soon, you're talking real money."
Attributed to Everett Dirksen, 60’s Republican politician
On June 13th, 2016, Microsoft announced that it was buying LinkedIn for $26.2 Billion. Dollars. USD. Yikes.
Why is LinkedIn worth that much money and what was Microsoft (MS) thinking when they bought it? As you can imagine, it’s complicated, but let’s try to unscrew the inscrutable here. (TLDR spoiler: nobody but Microsoft really knows, and they may be guessing.) Main Street kinda guy that I am, this gets a little deeper into the Wall Street aspects of finance than I usually dive into, but stay with me here - some interesting biz details ahead.
Disclosure: as regular readers know, I have something of a ‘tude regarding our friends in Redmond. (Geezer-speak: I have issues with MS). In spite of writing these words in MS Office Land - using Word 2011 on a Mac – I am generally not a big fan of things Microsoftian. I’m not crazy about certain current aspects of the Mac world right now either, but that’s another article. I have written/vented spleen in several articles, URLs below.
The Empire Strikes Backwards
As usual, a bit of recent history is in order. MS was late to the internet, was late to telephones, and is, of late, late to social networking. When Bill Gates finally woke up to discovering that the internet was a real and present utility, a sudden burst of MS energy produced the Explorer browser. It took several tries to get it mostly right, but eventually it became a useful tool to explore websites.
Then MS noticed that smartphones were a thing, and they came out with the less-than successful Windows Phone. It tanked. So they bought the successful Finnish firm Nokia for a mere $7.2 billion. That tanked. MS has since taken the hint and mostly vacated the smartphone biz. Starting to detect a pattern, are we?
Getting Social
Then one day MS CEO Steve Balmer noticed that Facebook was zooming up in the financial and streetcred charts, generating $$$ in advertising, and thought it might be a good idea to buy it. He offered a paltry $15 billion, and Facebook CEO Mark Zuckerberg wisely turned him down - Facebook is currently worth around $350 Billion. (I’m getting tired of writing “Billion”: from now on, B. $350B. Starting to talk real money here…). MS did end up buying a small piece of Facebook, 1.6% for $240M in 2007.
Yam, Yammer, Yamest
Still hot on the idea of crowbarring MS into the social networking realm, MS bought a software company called Yammer for $1B in 2012. Yammer’s thing is to build networked communities of business people, and MS integrated that into their Office 365 suite. Yammer was managed by Customer Success Managers (CSMs), who worked with Office 365-corporate users to set up community building. In January of 2016, MS laid off all the CSMs, which you think would kinda kill the whole idea, but MS soldiered on and activated Yammer with great fanfare for all Office 365 users in Feb. of 2016.
Taking in Slack
But there are already some pretty serious players in the biz networking arena, most notably, Slack. I’m not going to get into the Slack vs. Yammer rivalry here, except to say that Slack is getting most of the internet attention these days, so MS continues to have its challenges in this arena. Yammer gets 9M hits on a Google search, Slack gets 42M. Make of that what you will.
OK, so MS has Yammer, why does it need LinkedIn?
This is the $26.2B question that is getting a lot of attention from tech writers around the world. A write up in Ars Technica (URL below) prompted my foray into this muddy topic. My knee-jerk reaction is because they’re dummies, based on previous ill-fated major acquisitions like the ones listed above. I’m sure they have some nefarious grand scheme that will be obvious later – much later as I don’t see how they are going to make back their $26.2B investment anytime soon.
The Motley Fool, an online investment magazine, is puzzled as well. In an article (URL below), they point out:
Last year, LinkedIn lost $166 million on $2.99 billion in revenue. At that scale, you'd think LinkedIn would be getting close to profitable. In fact, the opposite is happening. The net loss widened from $16 million in 2014. It was profitable from 2011 to 2013, but increased spending on product development and a lower gross margin led it back into the red.
In other words, MS spent the amount of money I’m getting tired of mentioning on a company that has been losing money since 2013. LinkedIn’s stock valuation is also somewhat suspect due to their not declaring a large amount of staff compensation - having paid a lot of their employees with stock - which they don’t mention in financial reports. There’s a discussion of this in a New York Times article, URL below.
So will MS fall on its face again, or emerge triumphant, locking us all into the clammy grip of their monopolistic schemes, keeping complete control over every aspect of our online networking communities? Or will it be some messy combination of all the above, mashed in with battle-of-the-titans maneuverings by the other giants of the computer industries, as Facebook, Apple, Oracle, et al, battle for the hearts and minds and CPUs of us all?
In other words, business as usual?
Probably.
My previous articles about Microsoft:
http://mondodyne.com/b2b/smbiznet.194.shtml
http://mondodyne.com/b2b/smbiznet.174.shtml
http://mondodyne.com/b2b/smbiznet.165.shtml
http://mondodyne.com/b2b/smbiznet.134.shtml
Ars Technica article:
http://arstechnica.co.uk/information-technology/2016/06/why-did-microsoft-buy-linked-in-no-idea-analysis/
Motley Fool:
http://www.fool.com/investing/2016/06/18/3-reasons-microsofts-linkedin-acquisition-is-a-bad.aspx
NY Times Article:
Click here
Mike Gould sits on the sidelines on Main Street with his popcorn, was a mouse wrangler for the U of M for 20 years, runs the MondoDyne Web Works/Macintosh Training/Digital Photography mega-mall, is a laser artist, performs with the Illuminatus 3.0 Laser Lightshow, and welcomes comments addressed to mgould@mondodyne.com.
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