Will LinkedIn be another failed acquisition for Microsoft?

Priya sundarajan | | Updated on: Jun 15, 2016
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In its 41 years history, Microsoft has acquired several companies but the biggest success was none other than Hotmail, which was bought from Sabeer Bhatia for $500 million in 1997. However, a repeat of Hotmail is something that Microsoft hasn’t been able to achieve in the last 19 years despite making several deals worth over a billion dollar each.

While Monday’s announcement of $26.2 billion acquisition of LinkedIn by Microsoft has been the biggest for Microsoft so far, the tech giant has made eight acquisitions in the past that were worth over one billion dollars and that includes Skype (2011), aQuantive (2007), Fast Search & Transfer (2008), Navision (2002), Visio Corporation (2000), Yammer (2012), Nokia (2013) and Mojang (2014).

Past their time

Analysts believe the company’s track record of many of its past eight billion-dollar plus acquisitions indicate that the company’s current CEO Satya Nadella will have to put a lot of effort to ensure its largest acquisition so far of LinkedIn for $26.2 billion is not another stain on its reputation.

“Microsoft has not had the best track record with large acquisitions. Yammer was a disaster. Skype was ok. Nokia was a disaster. The key issues are Microsoft’s penchant for buying multi billion dollar companies past their prime. While the product is mature, the customer base solid, the good talent has usually left,” said Ray Wang, principal analyst and founder of Constellation Research.

Similar response was seen towards other large acquisitions by Microsoft including that of popular video conferencing app Skype for $8.5 billion in 2011. “It took Microsoft five years to define its strategy for Skype (and Yammer for that matter). This slow response to sort out Skype’s place in the Microsoft family slowed down Skype's momentum significantly. By the time the new Skype strategy was announced, most of the hardcore Skype users had migrated away towards other social collaboration platforms,” said Dan Bieler, Principal Analyst at Forrester.

Yet to show profit

Would LinkedIn also fall under the companies past their prime and meet the fate of Nokia, Yammer and Skype? Though LinkedIn has a massive 433 million user base, it has been struggling to grow the base and it still shy of seeing any profits, making analysts question Microsoft’s basis of taking such as large risk.

“A large part of LinkedIn’s activities are mobile based. Microsoft’s weak position in mobile ecosystems could dramatically undermine LinkedIn’s longer-term opportunities. If Microsoft underestimates the mobile dimension for LinkedIn, the future for LinkedIn could be very questionable. Users are fickle and there is no loyalty to outdated social media platform,” said Bieler.

Newer capabilities

However, LinkedIn does provide newer capabilities to Microsoft. The question however remains if the price is justified . For example, tried to do what Microsoft’s trying to achieve with LinkedIn by acquiring Jigsaw (LinkedIn’s poorer cousin) for $142 million in 2010.

“Post its failed attempt to acquire and losing it to arch competition AWS, Microsoft has made a clear attempt to regain lost ground and offer stiff competition on back of its product, Dynamics CRM. Microsoft is aiming to use the acquisition of LinkedIn to help beef up its ability to generate high quality leads, run marketing campaigns with improved ROI and offer deep customer insights,” said Sanchit Gogia, CEO at Greyhound Research.

Big writedowns

Microsoft has made two large writedowns on acquisitions in the past—$7.6 billion on Nokia’s handset business unit in 2015 and $6.2 billion on the acquisition of digital marketing firm aQuantive in 2012. Even the other six large acquisitions are not really seen as big successes for Microsoft.

Why has Microsoft been unable to take advantage of companies that were considered hot before Microsoft grabbed them? The clue may lie in Microsoft’s executive culture, experts believe.

“Integration has always been the issue. Two highly successful companies in technology/internet space will have a distinct culture which most often is derived from founders and early leadership. Generally acquirer company’s culture starts dominating, the founders make the exit and it suddenly becomes a new company with different vision and priorities and loses its mojo,” said Pareekh Jain, research director at HfS Research.

With LinkedIn being Microsoft’s first large acquisition since CEO Satya Nadella took over the company two years ago, all hopes ride on Nadella to ensure LinkedIn doesn’t turn into yet another Nokia for Microsoft.

“Satya Nadella has cleaned some house but the challenge happens when folks do not understand the fundamental technologies acquired and play a game of shuffle board Exec rotation,” Wang said.

Published on January 20, 2018

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