Microsoft's Purchase of LinkedIn
This by far has been one of the worst financial decisions yet best strategy decisions of all time. It's allowing the Microsoft business juggernaut to keep on moving forward and expanding to more businesses and to new markets but it was too pricey.
Microsoft's purchase of the professional social media platform Linkedin this week was one of the first major purchases by the new CEO of MS Satya Nadella. Unfortunately, I believe they paid way too much for it. Heres why:
Linkedin's share price was already falling, meaning that they could've purchased the company and platform for much lower than the 26 billion that they paid. At the moment of purchase Linkedin was only around 15 billion in market capitalisation. Furthermore, ad growth has been slowing across the market and on top of that Linkedin had lower attention rates than other competitors in the social media landscape notably Facebook, Instagram, Tumblr and Twitter. People normally only visit the website about once a month. What this means is that revenue generation from ad's or sponsored posts will be significantly lower than compared to other platforms. Also it's niche status as a professional social media platform restricts many ads from being used and makes it harder to target audiences. Some may argue that LinkedIn's power came from its subscription payment model, however the lacklustre features provided (over the free package) and percentage that use the paid service is minimal and hence would not be a revenue generating machine that Microsoft is paying for at such a high price.
However, the return on investment here is far from Microsoft's direct revenue from the service. Rather it show's how the company is positioning itself for the future. The future of the technology landscape will be platforms and Microsoft has struggled in the community and social part of this. Skype has failed to gain traction and with Google Hangouts and Facebook now having the ability to voice call and video call in groups, it doesn't present the offerings it once did. On top of this, Microsoft's other venture into the social media landscape, the purchase of Yammer, did even worse to gain traction. LinkedIn on the other hand is an established professional services platform that is already a core part of many professional people's profiles and presents the solution to the dilemma of the casualisation of a host of social media platforms. It present's a smart direction for Microsoft to integrate the platform into its own office platform. I don't believe they should use it for communication (there are far better messaging platforms that they could use, including their already owned Yammer) but it does allow Microsoft to help connect professional people together if executed correctly and if a fresh new direction is laid out for the stagnating platform.
In the end this purchase was a smart strategic direction for Microsoft as LinkedIn move's beyond just being an online resume/C.V. however the price paid for the offering provided to Microsoft is overpriced to say the least. They had more than enough bargaining power to bring the price of it down and this can be seen with LinkedIn's shares jumping over 40% after purchase and Microsoft's shares falling by over 2% - which isn't too much relative to the size of Microsoft but shows discontent by shareholders either financially (as in it was a poor financial choice) or just that they didn't like the direction Microsoft is moving it.
What I can see is this: Not only does Microsoft dominate the productivity software (Microsoft Office) and operating system's that are used (Windows) in professional environments but they are now trying to venture into an area that will be put them at the forefront of professional communication and networking. What I would like to see as an offering from Microsoft is a better way to network, improved list for 'people that you may know' as well as improved search and groups.
Microsoft's purchase of the professional social media platform Linkedin this week was one of the first major purchases by the new CEO of MS Satya Nadella. Unfortunately, I believe they paid way too much for it. Heres why:
Linkedin's share price was already falling, meaning that they could've purchased the company and platform for much lower than the 26 billion that they paid. At the moment of purchase Linkedin was only around 15 billion in market capitalisation. Furthermore, ad growth has been slowing across the market and on top of that Linkedin had lower attention rates than other competitors in the social media landscape notably Facebook, Instagram, Tumblr and Twitter. People normally only visit the website about once a month. What this means is that revenue generation from ad's or sponsored posts will be significantly lower than compared to other platforms. Also it's niche status as a professional social media platform restricts many ads from being used and makes it harder to target audiences. Some may argue that LinkedIn's power came from its subscription payment model, however the lacklustre features provided (over the free package) and percentage that use the paid service is minimal and hence would not be a revenue generating machine that Microsoft is paying for at such a high price.
However, the return on investment here is far from Microsoft's direct revenue from the service. Rather it show's how the company is positioning itself for the future. The future of the technology landscape will be platforms and Microsoft has struggled in the community and social part of this. Skype has failed to gain traction and with Google Hangouts and Facebook now having the ability to voice call and video call in groups, it doesn't present the offerings it once did. On top of this, Microsoft's other venture into the social media landscape, the purchase of Yammer, did even worse to gain traction. LinkedIn on the other hand is an established professional services platform that is already a core part of many professional people's profiles and presents the solution to the dilemma of the casualisation of a host of social media platforms. It present's a smart direction for Microsoft to integrate the platform into its own office platform. I don't believe they should use it for communication (there are far better messaging platforms that they could use, including their already owned Yammer) but it does allow Microsoft to help connect professional people together if executed correctly and if a fresh new direction is laid out for the stagnating platform.
In the end this purchase was a smart strategic direction for Microsoft as LinkedIn move's beyond just being an online resume/C.V. however the price paid for the offering provided to Microsoft is overpriced to say the least. They had more than enough bargaining power to bring the price of it down and this can be seen with LinkedIn's shares jumping over 40% after purchase and Microsoft's shares falling by over 2% - which isn't too much relative to the size of Microsoft but shows discontent by shareholders either financially (as in it was a poor financial choice) or just that they didn't like the direction Microsoft is moving it.
What I can see is this: Not only does Microsoft dominate the productivity software (Microsoft Office) and operating system's that are used (Windows) in professional environments but they are now trying to venture into an area that will be put them at the forefront of professional communication and networking. What I would like to see as an offering from Microsoft is a better way to network, improved list for 'people that you may know' as well as improved search and groups.
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