Tag Archives: acquisition

Economic Graph: Why Microsoft bought LinkedIn?

“You might feel a sense of excitement, fear, sadness, or some combination of all of those emotions. Every member of exec team has experienced the same, but we´ve had months to process”
Jeff Weiner, LinkedIn Ceo

LinkedIn was bought for $26.2 billion in an all-cash deal this week. It is one of the biggest acquisitions this year and the biggest acquisition in the history of Microsoft. Failure rate of mergers and acquisitions in general is somewhere between 70% and 90% and Microsoft has not really been an exception. This deal might still actually make sense. Below I present some of the main points why Microsoft bought LinkedIn.

“LinkedIn will become the social fabric across all of Microsoft”
Satya Nadella, Microsoft CEO

Data is power
Firstly, Microsoft is mainly buying access to the lucrative professional audience. LinkedIn has 433 million users of which pretty much everyone is on their target audience. LinkedIn will be run as a separate entity (a bit like Instagram within Facebook), but naturally there is vast amount of insights to be gained from the platform that would benefit Microsoft in multiple ways (product development etc.). Microsoft will want to create an economic graph, alike to Facebook´s social graph but with people with money.
Better productivity: Goodbye work-life balance
Microsoft has been aggressively pushing their cloud solutions. The first possible use cases Satya Nadella mentioned in his memo were around connecting Office 365, Dynamics and LinkedIn database. You could for example get articles in LinkedIn newsfeed based on the actual project you are working on. Or Office could suggest you to connect with expert to connect via LinkedIn to help you complete a task you are working on. When you are going to a new business meeting you would get automatically the background information from LinkedIn. Great functions, but are they worth the $26 billion price tag?

LinkedIn as a CRM Platform
Currently Microsoft is at fourth place in CRM software, behind Salesforce, Sap and Oracle. Merging databases with LinkedIn could bring Microsoft much needed advantage in this field. Of course around 75% of CRM implementations fail, but that also means that there is target market not particularly happy with their current products.

This deal might be really good thing for the future of LinkedIn. The platform has not really evolved from recruiting site, which is a challenge if majority of your audience is not actively looking for a job. Although some argue that LinkedIn is a content company, only 25% of LinkedIn users return every month to the site. Connecting with Microsoft might give it a boost that it needs to stay relevant in the competitive social media space. Twitter could do with similar boost.

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What´s App Facebook? 4 Questions You Need to Ask to Understand The Acquisition of WhatsApp

Facebook´s acquisition of WhatsApp for about 19 billion (!) is the biggest deal ever for venture-capital-backed startup. As far as the money goes, it is naturally mind-boggling amount of cash but strategically I am trying to get my head around this. Four big questions came to my mind, when analyzing the acquisition:

1. What kind of ecosystem Facebook is building?
Currently Facebook is owner of three really strong (and separate) digital platforms: Facebook, Instagram and WhatsApp. Despite launching the ad units in Instagram, the photo platform has been relatively autonomous regarding Facebook. Apparently they will continue similar approach with WhatsApp and even more so as there will be no ads (in foreseeable future) in WhatsApp. See more in question 2 on that matter.
If we compare to Google, who builds their entire product offering under strong Google branding and synergies, Facebook currently resembles more of a venture capitalist and having quite separate and independent entities. Either approach is right or wrong, but at least currently Facebook ecosystem seems quite disjointed compared to the Google one. But maybe they have a bigger plan intact: see question 4.

2. How will Facebook monetize WhatsApp?
On the investor call Facebook mentioned that there would be no ads on WhatsApp and they are mainly concentrating on growth in the near future. Currently WhatsApp is free for one year and then you pay 0.99 for every additional year (and not even in all the markets).  Current business model is not exactly breaking the bank as it has quite limited growth opportunities, but compared to many other social ventures coming from Silicon Valley it is already profitable. From monetization standpoint it is interesting opportunity for Facebook to enter also to the subscription business and test it first with WhatsApp before rolling it to wider.

3. Was it strategically right decision?
Initially buying WhatsApp seemed a rather uninspiring and unsurprising act. More forward-looking would have been buying some emerging mobile instant messaging platform from Asia (Line, KakaoTalk, etc.). Especially as Facebook mentioned that the reach in emerging markets was one of the core reasons for acquiring WhatsApp. Asian mobile instant messaging platforms would have been better fit also to current Facebook monetization strategy as these platforms are currently more open to advertising as well? Cynical view of the strategic importance of the buy was that as the main Facebook platform loses steam the growth and engagement had to be bought to please the investors.

4.  Will there be Facebook Premium in the future?
How much would you pay for your Facebook account?
It might be that the goal of buying Instagram and WhatsApp is eventually to have capabilities to introduce Facebook Premium. This social network would add the best of the Facebook ecosystem and provide value on certain subscription fee. I have been toying around with that idea for a while, but currently it seems more reality than ever before. I have been quite disappointed of the unimaginative monetization strategies Facebook has had (overtly media-focused) and venturing to subscription models without endangering the crown jewel of free Facebook seems lucrative and interesting option.

The reaction from the markets to the acquisition was slightly disappointed and Facebook stock plunged slightly.

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