Microsoft (NASDAQ:MSFT) is acquiring LinkedIn (NYSE:LNKD) for $26.2 billion in a bid to complement its enterprise software and enterprise cloud offerings with LinkedIn’s professional network. The deal price values LinkedIn at a 50% upside compared to its closing price last Friday. The price has evoked mixed responses, with some calling it “a match made in uncool heaven”, ((Microsoft and LinkedIn: A Match Made in Uncool Heaven, Network World, June 14 2016)) while others are calling it “a bad move” .
Notwithstanding the high price of $26.2 billion, we think that the deal makes sense and can help Microsoft usher in the next chapter of high quality growth by capitalizing on LinkedIn’s established professional relationships of 433 million registered users, 105 million monthly active users, 9 million company pages and over 2 million paying subscribers. Here’s how LinkedIn’s professional network can help Microsoft:
- Enterprise Software-As-A-Service (SaaS): After Salesforce (NYSE:CRM), Microsoft is the second biggest provider of software-as-a-service offerings including customer relationship management (CRM) and enterprise resource planning (ERP). The company grew SaaS sales grew by 70% year over year in 2015 and improved its market share by about 300 basis points, compared to Salesforce’s SaaS sales rising by 21% in the same time frame. Microsoft will surely benefit from LinkedIn’s vast network of professionals and enterprises, as well as its customer management and social selling offering, which is called LinkedIn Sales Navigator. Sales Navigator generated $60 million in revenues for LinkedIn in the first quarter this year, growing at over 25% year over year.
- Cloud Infrastructure Services: Amazon is the undisputed leader in the global cloud infrastructure services market with a share of over 31% while Microsoft is the second largest player with a share of 9%, closely followed by Google (NASDAQ:GOOGL) with 7%. LinkedIn’s network of 9 million plus company pages, strong enterprise relationships and sales channels should help Microsoft garner new clients. It will also help the company in offering bundled services including cloud infrastructure, CRM, ERP, Office 365, online learning courses (Lynda.com) and a professional network platform.
- Cloud Infrastructure Software: Microsoft is a dominant leader in the cloud infrastructure software market with a market share of over 40%, with the nearest rival, VMware (NYSE:VMW), trailing with a share of less than 20%. According to an IDC estimate, worldwide spending on cloud IT infrastructure is likely to grow at over 15% on a year-over-year basis over the next few years, with growth primarily coming from public cloud infrastructure.  LinkedIn’s massive presence in the public cloud domain with an enterprise customer base is likely to help solidify Microsoft’s leading position in the cloud software and infrastructure market. Moreover, the improved market presence and greater adoption of Microsoft services should help the software major win new clients and generate revenue synergies with its other offerings- Enterprise SaaS and Cloud Infrastructure Services.
[Market data source: Synergy Research Group]
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- Microsoft’s LinkedIn Buy: Bad Move, Chris Lau- Seeking Alpha, June 14 2016 [↩]
- IDC Forecasts Worldwide Cloud IT Infrastructure Market to Grow 24% Year Over Year in 2015, IDC Press Release, October 05 2015 [↩]