13 June 2016

Microsoft Pays $60+ per Member to buy LinkedIn

Adding LinkedIn's 105M active monthly users to Microsoft

This morning we learned of one of the largest deals to be made in the history of Microsoft. In a cash deal worth more than USD26 Billion, Microsoft has agreed to purchase LinkedIn. Paying a premium of 49% over the trading price, Microsoft's offer represents USD196 per share or more than USD60 for each of the 433 million LinkedIn members. When the deal is approved by regulators, LinkedIn will become an independent unit within Microsoft, lead by LinkedIn chief executive, Jeff Weiner.

A quick analysis of the research data shows 24% of LinkedIn's 433 million members are reported active on a monthly basis. This means Microsoft has paid about USD249.52 per active subscriber/member. Further analysis of the data may be necessary to determine the number of premium subscribers and regular members that actually stay in place through the transition.

Microsoft stock dropped today, as investors expressed skepticism about the deal, the lack of profitability at LinkedIn and/or recent hacks of LinkedIn data. However, analysts have generally taken a positive view of this transaction.

"The acquisition makes sense in respect of Microsoft's link with enterprise in its cloud platform and portfolio of enterprise business services," professor Mark Skilton of Warwick Business School said in a CBC interview. "It will help Microsoft build out its enterprise services capabilities."

Marvin Ryder, an assistant professor at McMaster University's DeGroote School of Business as quoted by CBC said, "This is the way the world is going. Everything is  moving toward some kind of social media. If you're not there, like if you don't have something on mobile, you can't really compete. This positions them (Microsoft) for 2020 and beyond."

Mike Murphy writer for the online channel Quartz noted that two-thirds of LinkedIn’s USD2.9 billion in revenue last year came from services sold to human resources departments to find the right candidates for job openings, a business LinkedIn calls "Talent Solutions.”

Microsoft had earlier attempted to acquire Salesforce but as Murphy notes, they already have a software platform, branded Dynamics which mimics Salesforce. LinkedIn already is a go-to site for salespeople looking to learn more about clients, leads, and companies. Now LinkedIn will be part of a suite of products that Microsoft’s salespeople can hawk to business customers.

Microsoft CEO Nadella wrote in his email to Microsoft employees: "This deal brings together the world’s leading professional cloud with the world’s leading professional network. I have been learning about LinkedIn for some time while also reflecting on how networks can truly differentiate cloud services. It’s clear to me that the LinkedIn team has grown a fantastic business and an impressive network of more than 433 million professionals."

"Think about it: How people find jobs, build skills, sell, market and get work done and ultimately find success requires a connected professional world. It requires a vibrant network that brings together a professional’s information in LinkedIn’s public network with the information in Office 365 and Dynamics." 

"As these experiences get more intelligent and delightful, the LinkedIn and Office 365 engagement will grow. And in turn, new opportunities will be created for monetization through individual and organization subscriptions and targeted advertising," he stated.

Watch the Interview with Microsoft's Nadella and LinkedIn's Weiner

As an active LinkedIn member almost since the beginning and for the past three years a Premium subscriber I can attest the service has been very useful. It isn't surprising to me that Microsoft would find the company attractive. 

However, the most interesting aspect of this deal is the value Microsoft has placed on the subscriber/members they are acquiring with little or no subscriber revenue. It is becoming increasingly common for large brands to acquire active residual subscriber/members for cash. The development of subscriber/members takes more time and more money than an agile brand in the new economy can afford. In my opinion, the competition for trusted subscriber/member relationships has only just begun.

About Executive Producer, Larry R. Evans:
Larry Evans is a futurist, a brand developer and a collaboration advocate. He is Principal of The Paradigm Corporation, which is headquartered at Thunder Ridge just outside Crossfield, Alberta, Canada. He is known for bringing a unique and predictive lens to paradigm shifts during a career that spans 45 years. Now from his wheel chair, he brings a grounded, tenacious view of brand, client rights and trusted relationships for the digital age. His perspective and values influence his life, business and ministry.

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