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Why Microsoft Buying LinkedIn For $26B Is A Smart Move

LinkedIn could help Microsoft stave off Google and Amazon in the battle to rule the enterprise market.

Why Microsoft Buying LinkedIn For $26B Is A Smart Move
[Photo: Flickr user Johannes Marliem]

Microsoft's announced plan to acquire LinkedIn for a heaping $26.2 billion gives the tech giant access to tons of data about LinkedIn's 433 million users—and a spate of professional tools such as its recruitment technology.

"Just as we have changed the way the world connects to opportunity, this relationship with Microsoft, and the combination of their cloud and LinkedIn’s network, now gives us a chance to also change the way the world works," LinkedIn CEO Jeff Weiner stated in Microsoft's release.

The Future Of Work

Microsoft is competing for the future of work, a battle that's taking place in the cloud against Google and Amazon. Much of Amazon's Web Service business is based on infrastructure, giving companies a place to store data.

"In the future, SaaS [software as a service] is going to be the bigger component of the whole revenue pie for cloud," says James Wang, analyst at investment management firm Ark Invest.

Software as a service is traditionally Microsoft's strong suit. The LinkedIn acquisition is just the latest tool in a robust palette of office software, including Office 365, Yammer, Skype, and the calendar app Sunrise. What LinkedIn brings to the table is recruitment technology, training tools through Lynda, and big data about companies and individual professionals and their networks. Because LinkedIn is a social network, it could also help bring together some of the many tools that Microsoft has been acquiring.

LinkedIn's Data Trove

Earlier on Monday, Benedict Evans, a partner at Andreeseen Horowitz, tweeted that the LinkedIn acquisition might provide Microsoft with some much-needed connective tissue for its enterprise products. LinkedIn's big-data play stands to do two things for Microsoft. The first is to potentially help Microsoft draw on a person's larger network.

"When you think about what Microsoft has with Office 365, they have a lot of data starting to come together about helping companies collaborate internally better with their internal network, but nothing with their external network," says Ted Schadler, application development analyst at Forrester Research. "So if they can find ways to bring together the external network that is LinkedIn and the internal network that is Office 365 together, that’s powerful."

The second big-data play Schadler sees is around data analysis. LinkedIn could provide insight to Microsoft clients about their talent intake or bleed. Microsoft could also take advantage of LinkedIn's data to make product decisions, develop better ways for dealing with specific workers or companies, or feed new artificial intelligence projects.

However, while LinkedIn provides a ton of potential value, it's very much just that—potential. There's no real indication yet of how Microsoft might turn LinkedIn into that connective tissue Evans tweeted about, or if it even will. After all, at its core LinkedIn is a recruitment tool—that's where it makes its money. Furthermore, Microsoft said explicitly in its release, that LinkedIn will continue to operate as its own independent brand. It could be that LinkedIn just represents another service in its stack.

Competing With Amazon And Google

Still, it's in Microsoft's interest to develop LinkedIn in a way that makes its enterprise products even more compelling, especially as other companies march deeper into the enterprise market. While Microsoft Office 365 moved ahead of Google Apps for Work in market share last year, Google still represents stiff competition for Microsoft.

LinkedIn provides another way for Microsoft to bolster itself against other, increasingly formidable enterprise competitors and to maintain its hold on the enterprise market.

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