Why Did Microsoft Buy LinkedIn?

Microsoft’s deal to buy LinkedIn has major implications not only for both companies, but for how workers in all sorts of occupations and industries interact and connect. It also has the potential to transform workforce management, not to mention how sales and selling are conducted.

Considering that Microsoft paid a significant premium — 91 times EBITDA and almost 50% more than LinkedIn’s closing stock price Friday — it’s clear the tech giant was more than a little eager to seal deal that had been in discussion since January. But why?

In an email to employees, Microsoft’s CEO Satya Nadella explained, “…this deal is key to our bold ambition to reinvent productivity and business processes.”

“How people find jobs, build skills, sell, market and get work done and ultimately find success requires a connected professional world,” his memo says.

Integrating with Microsoft’s office products

One version of the integration of LinkedIn with Microsoft’s all but ubiquitous business products — Office, its CRM / ERP Dynamics product line and cloud-based Office 365 and its cloud platform Azure— puts individual profiles at the center of a web of connections.

As Nadella and LinkedIn CEO Jeff Weiner described the future to investors and analysts during a morning webcast, the integration makes it possible, in one example, pull together information from all these sources — don’t forget Bing is a MS product, too — to deliver profiles of individuals at a meeting or flesh out sales leads with details on prospects and their companies.

In a series of slides accompanying the webcast, one shows Microsoft’s personal assistant Cortana — its counterpart to Apple’s Siri — providing background on an upcoming business meeting.

“In the future (after the merger),” says the slide, “Cortana will also know your entire professional network to connect dots on your behalf so you stay one step ahead.”

More to the point, Nadella told employees, “This combination will make it possible for new experiences such as a LinkedIn newsfeed that serves up articles based on the project you are working on and Office suggesting an expert to connect with via LinkedIn to help with a task you’re trying to complete. As these experiences get more intelligent and delightful, the LinkedIn and Office 365 engagement will grow.”

Deeper talent insights

The webcast slides also note that the integration will give organizations deeper insights into the skills and effectiveness of their teams. Exactly how that will occur will take time to work out. Here’s one possibility: If a manager discovers that her team rarely communicates with each other on a project — Yammer is another Microsoft product — that knowledge can prompt her to take action before deadlines get missed or worse.

LinkedIn’s learning platform, Lynda, might be integrated with Office 360 in such a way that micro-modules explaining how to do certain tasks pop-up when help is needed. In a note to LinkedIn employees Weiner observed that “6 of the top 25 most popular Lynda.com courses are related to Microsoft products.”

For recruiters, gaining access to the breadth of employees’ networks (for those who grant that access) can transform referral programs. But even without that kind of access, just seeing who the go-to people are in a company can change the quality of the candidates being recruited.

A “re-founding” moment

For LinkedIn, the acquisition is, as founder and biggest shareholder Reid Hoffman described it, a “re-founding moment.”

After regularly reporting revenue and earnings at least as good as the most optimistic of predictions, in February, LinkedIn forecast a sharply lower revenue growth for this year. That sent its stock plummeting.

In 2015, 63% of LinkedIn’s revenue came from recruiting, which has been slowing for several quarters. Integrating it with the Dynamics CRM could be just the additional impetus for Microsoft to move ahead of Salesforce, which it reportedly tried to buy.

Weiner, in his employee note, saw LinkedIn’s Sales Navigator get new life integrating with Dynamics. It would redefine social selling, he said.

Anurag Rana, a senior analyst for Bloomberg Intelligence, says “LinkedIn could really become a really big competitor for Salesforce going forward.”