By Adam Fraser
A big week for transactions in the MarTech world with SalesForce acquiring Demandware for US$2.8bn, Twitter investing in audio streaming service SoundCloud for US$70m and the big one – Microsoft swooping in on LinkedIn in a deal worth a cool US$26bn, a $US9bn premium on the value based on the stock price prior to the announcement.
LinkedIn has been under pressure from the stock market since its disappointing Q4 2015 results when its share price declined an incredible 44% in a single day. The deal came somewhat out of the blue and has puzzled a number of analysts.
At a price of 7.2 times revenue it is not cheap on any measure. LinkedIn remained loss making notwithstanding its preferred measure of profitability being to add back stock based employee compensation (at which point it became profitable).
Clearly therefore this deal is all about strategic synergy. As well as hoping LinkedIn (with its 400m plus members and exceptionally strong position in B2B) will mature into a profitable stand alone business, the key factor is the way it can help the remainder of the Microsoft product stable.
The most obvious product would seem to be Microsoft’s CRM product (Dynamics). A massive challenge for any CRM system is maintaining accurate contact information – most professionals keep LinkedIn up to date, so by integrating CRM with LinkedIn this becomes an important differentiator against CRM competitors (primarily Salesforce and SAP). Deep and accurate data on this scale is valuable. Other workflow related synergies should also emerge in managing appointments and sales opportunity status – with integration to Microsoft Office also in play here.
There are many other potential synergies, including LinkedIn’s online training business (it recently acquired Lynda.com) integrating with a number of Microsoft’s productivity apps. Jeff Weiner, LinkedIn CEO outlined many ways the companies could work together in his letter to all LinkedIn staff. In particular he noted:
“Think about things like LinkedIn’s graph interwoven throughout Outlook, Calendar, Active Directory, Office, Windows, Skype, Dynamics, Cortana, Bing and more”
For now LinkedIn remains a stand alone service, so don’t expect to see too many changes to user experience in the short term.
In the medium and longer term the potential synergies are certainly there; but the price tag is not cheap and as Microsoft discovered when it bought Nokia – $7.2bn price followed by a massive write down within 18 months – potential synergies don’t always come to financial fruition.
Based on this transaction I would expect to see increased takeover talk around Twitter and Pinterest from here. Interesting and dynamic times as always in the martech world.
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