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Avi Rosenthal

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Microsoft's LinkedIn acquisition: more warning signs ahead or a potential for improvement?

LinkedIn headquarters on Sterlin Court
in Mount View California
source: Wikipedia

Microsoft and LinkedIn announced on 13th June that they have entered into a definitive agreement under which Microsoft will acquire Linkedin for 196 USDs per share in an all-cash transaction valued 26.2 billions.

On 2011 Microsoft acquired Skype. I had seen Warning Signs ahead. Will the agreed acquisition of LinkedIn stimulate new Warning signs?

On 2013 Microsoft acquired Nokia in order to compete in the Smartphones market. Microsoft is not a significant player in the Smart phones market.
Will Microsoft fail, as well, in the Social Networks  market?

When Steve Ballmer stepped down as the CEO of Microsoft I updated my Vendors Survival post about Microsoft
Almost a year afterward I revisited my forecast  and I was more optimistic.
The reason for my optimism was Satya Nadella's new strategy: Cloud First. 
Will Linkedin proposed acquisition be an additional step in the right direction? 

LinkedIn
Linkedin is a kind of Social Network. As far as the number of users is concerned, It is smaller than Facebook and Twitter.

Facebook has 1.65 billion active users, Twitter 310 million active users. Google+ 111 million users and LinkedIn 106 million users.

Facebook's revenues for 2015 were 17.928 billion USDs. Twitter revenues for 2015 were 2.21 billion USDs. LinkedIn revenues for 2015 were 2.99 billion.

Facebook has approximately 12,600 employees. Twitter 3,900 and LinkedIn 9,700 employees

Probably, you do not need the data above in order to conclude that Facebook is the Leader of the Social Networks market.

It should be noted that the number of LinkedIn's employees is more than 2.5 times the number of Twitter's employees. It is more than 0.75 of the number of giant Facebook. 

The relative large number of employees could be an indication of inefficiency and/or an indication of more complex systems.

LinkedIn is unique because it is a professional Network. Facebook and Twitter are Social networks.
However, the boundaries between Social and Professional are not clear.

For example, I am a member of two Cloud Computing groups. No doubt, that the LinkedIn group is professional, but is not the Facebook group professional as well? 

Additional Functionality
As a professional Network, LinkedIn added functionality which is not required in a Social Network. For example, a resume and an endorsement mechanism. 

Does the development and maintenance of additional functionality explains the relative high number of LinkedIn employees? probably it explains part of the additional employees number.
The other part should be explained by less efficiency.

If you are less efficient than your competitors you net income is lower. According to Wikipedia' Twitter's net income in 2015 was 521 million USD. LinkedIn net income in 2015 was only 166 million USD.

If you are less efficient than your competitors , you probably need that a larger company will acquire you.

First Take of LinkedIn future acquisition
It is a manifestation of a new Microsoft trying to compete in a new market of Social Networks. 
Facebook and Google are players in that market.

Microsoft is not competing directly with market Leaders, such as Facebook, but will be a Leader in Niche.

It is a significant Niche of Professional Networking.

The Key Issues are:

1. is the price Microsoft is willing to pay for that acquisition a reasonable or is it too high?
In February 2016, following an earning report, LinkedIn shares dropped 43.6% within a single day.
Is this a Warning Sign? 

2. Will LinkedIn efficiency improved?

3. Can Microsoft improve LinkedIn Business Model so LinkedIn revenues will grow?
LinkedIn revenues model is based on Advertisement. Will Microsoft be able to create new revenues sources or better Advertisement revenues model?

4. Will Microsoft and Linkedin Innovate and/or find additional Use Cases for LinkedIn technology?
Internal Enterprise Electronic Social Network Services is an example of additional Use Case.

LinkedIn could build a network for Microsoft's employees. Business Partners may join that network.
The new Professional Network would be based upon current LinkedIn offerings.

The network could enable better execution by Microsoft.   
The same product could be sold to other companies by LinkedIn.

5. Will LinkedIn be independent entity or a unit within Microsoft?
On the one hand, Merge is not as difficult as merging two large companies, but it could be a death verdict for LinkedIn and its products and another failed investment. 

On the other hand, LinkedIn's Business management should be improved.

Will Microsoft and LinkedIn find an optimal solution to this conflict?

Conclusion
Many question marks are included in the previous section.

I am not sure that this acquisition will be a failure such as Nokia acquisition, but the probability that this acquisition will leverage Microsoft's business is low.

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Ari has over 30 years of experience in IT across a wide variety of technology platforms, including application development, technology selection, application and infrastructure strategies, system design, middleware and transaction management technologies and security.

Positions held include CTO for one of the largest software houses in Israel as well as the CTO position for one of the largest ministries of the Israeli government.