Expert opinion: Does Microsoft’s purchase of LinkedIn make sense?

When it comes to giant corporations acquiring extremely large and valuable companies, the excitement around the purchase often doesn’t translate into long term success.

There are no shortage of problems to overcome to achieve a smooth integration between such large companies.

Clashes of corporate culture and difficulty getting independently-developed technologies to work together sometimes prove to be insurmountable obstacles.

The path of acquisition is also littered with failures. Hewlett-Packard managed to overpay massively for UK enterprise software company Autonomy, ending up writing off $8.8 billion.

HP also purchased Palm in 2010 for $1.2 billion before scrapping the whole thing just a couple of years later.

Microsoft themselves are not immune to making poor acquisitions, buying digital marketing company aQuantive in 2007 for $6.3 billion – 85 percent more than the company’s market value, and losing out again on the acquisition of Nokia’s handset business in 2014.

Then there was Yammer, a 2012 purchase which brought some enterprise-targeted social media features to Office 365, but which is arguably beginning to look a bit old fashioned when compared to cooler collaborative tools like Slack.

So will this new acquisition work out?

Under Satya Nadella’s leadership, Microsoft has been steadily transitioning itself from the desktop to the cloud. The data from over 400 million LinkedIn accounts is now destined to be integrated into Microsoft Dynamics, OneDrive, Skype and Office 365.

The purchase makes sense for LinkedIn. The company has been monetising using the freemium model but last year it lost $166 million on $2.9 billion in sales, the problem being that only two million of their users have found the service valuable enough to become subscribers.

Nadella seems to be gambling that the purchase and integration of LinkedIn will modernize Microsoft’s enterprise software offerings, but LinkedIn isn’t a tool for collaboration, which might be useful, it’s a tool for networking. Do we really want that built into our productivity tools?

There is some value there when you consider how user profiles could be integrated with Skype or Outlook but $26 billion dollars is an awful lot of money to achieve this.

It will be fascinating to see how this all shakes out, but at the moment it’s not clear to see how Microsoft benefits much from this and all too easy to imagine the acquisition as a costly mistake.

Jack Peploe is managing director of Thirdline, an award winning managed service provider delivering tailored industry leading technology solutions to SMEs throughout the UK. www.thirdline.eu