linkedin-911794_640Why buy LinkedIn?

Let’s answer the why buy first.

Tech arena is dominated by the 5 giants: Google, Apple, Facebook, Amazon, and Microsoft. Google dominates Search and Mobile; Apple dominates mobile; Amazon dominates Commerce and Cloud; Facebook dominates Social; and Microsoft, despite its size, dominates nothing.

That can’t go on, if Microsoft wants to remain as one of the giants, and have a chance to win. As a result, they have decided to acquire LinkedIn and get a key strategic position in Social. However, their endgame is not Social, it is Cloud. Here’s why.

LinkedIn’s social network is that of a professional nature. Most of this universe fits into the bucket of being enterprise cloud services users. I am using the word enterprise broadly, to include all businesses and organizations, including small and micro businesses. I have long been of the opinion that LinkedIn’s only real asset it’s incredible network. Some are of the opinion that this could monetize better if they became a cloud services vendor, especially with an anchor position in CRM and related products. I’m still on the fence about that part. But imagine how powerful a combination Salesforce and LinkedIn would make with all the data in CRM being integrated fully with LinkedIn? They could charge a huge premium for that kind of CRM system.

However, LinkedIn decided to go in a different direction. It is a very interesting direction, including Media and Education, beyond its recruiting and marketing solutions. However, this move by Microsoft tells me that the Cloud Services strategy is something they do see, and it is the core idea behind this acquisition.

Why did LinkedIn sell?

LinkedIn has monetized largely with a freemium strategy. The problem is, today’s Internet is such a bastion of free riders, that any company banking on freemium has a hard time scaling and converting users. I think, LinkedIn came to realize this limitation, and when Microsoft came knocking, they chose to do the cloud services strategy within Microsoft, as opposed to remaining an independently. Culturally, LinkedIn is considered a media company. Cloud Services provider would be a significant cultural shift. However, for Microsoft, it will be a natural and logical progression.

What’s next?

Watch what happens in CRM. Microsoft needs to fortify its CRM position and deeply integrate LinkedIn into it. Marketo recently was acquired by a private equity firm. That company would be a natural one to bolt onto the LinkedIn acquisition. I have heard others say that they thought that LinkedIn could start down the Cloud Services path by acquiring Marketo and remain an independent. However, that recommendation is now up to Microsoft.

Conclusion

Nothing hugely exciting has happened in Tech in a while. This deal injects energy into Microsoft, the weakest of the five giants. Let us see what they do with it over the next 12-24 months.