Why Microsoft-LinkedIn deal made sense to Satya Nadella

Microsoft's $26.2 billion all-cash deal to acquire LinkedIn, is the second biggest tech M&A of all times. Sixth acquisition of the year (2016) for Microsoft, this deal is the biggest of all 196 acquisitions by the tech giant till date. While Microsoft expects to leverage the 433 million members of LinkedIn to expand its business, there are more reasons behind the historic deal between the two tech giants.

Satya Nadella, CEO, Microsoft, see this deal as coming together of world’s leading professional cloud and the world’s leading professional network. In a letter written to Microsoft employees about the acquisition, he mentioned that he has been learning about LinkedIn for some time while also reflecting on how networks can truly differentiate cloud services. He said,

It’s clear to me that the LinkedIn team has grown a fantastic business and an impressive network of more than 433 million professionals.

Three key questions which Nadella asks before going ahead with any acquisition are:

1. Is the asset expanding Microsoft's total addressable market?
2. Is this asset riding secular usage and technology trends?
3. Does this asset align with the core business of the company and overall sense of purpose?

He acknowledged that the answer to all of those questions with LinkedIn is squarely yes.

Also read: 9 interesting stats on Microsoft's acquisitions

Given this is the biggest acquisition for Microsoft since Nadella became CEO, he shared his views on acquisitions overall and why the Microsoft-LinkedIn deal made sense to him.

For Office 365 and Dynamics

Along with the new growth in Office 365 commercial and Dynamics businesses this deal is key to their bold ambition to reinvent productivity and business processes. Nadella said,

Think about it: How people find jobs, build skills, sell, market and get work done and ultimately find success requires a connected professional world. It requires a vibrant network that brings together a professional’s information in LinkedIn’s public network with the information in Office 365 and Dynamics.

New opportunities for monetization

Nadella believes that this combination will make it possible for new experiences such as a LinkedIn newsfeed that serves up articles based on the project users 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. And in turn, new opportunities will be created for monetization through individual and organization subscriptions and targeted advertising.

Re-founding LinkedIn

Jeff Weiner and Satya Nadella both believe that Microsoft has a significant opportunity to accelerate LinkedIn’s growth. It can bring a lot of value to its members with Microsoft’s assets and scale. Reid Hoffman, the founder of LinkedIn, called this deal a “re-founding” moment for LinkedIn and an opportunity to reach the mission the company set out on 13 years ago.

Even with 433 members, LinkedIn was finding it tough to maintain a robust growth in its sales. The current deal gives the company, much needed distribution network coupled with a better offering with Microsoft softwares and LinkedIn products combined together.

Evolution of Office continues

Over the past decade Microsoft has moved Office from a set of productivity tools to a cloud service across any platform and device. This deal is the next step forward for Office 365 and Dynamics as they connect to the world’s largest and most valuable professional network.

Aligning LinkedIn's growth with Microsoft's vision

According to Nadella, a big part of this deal is accelerating LinkedIn’s growth. To that end, LinkedIn will retain its distinct brand and independence, as well as their culture. Jeff Weiner will continue to be CEO of LinkedIn, he’ll report to Satya Nadella and join Microsoft’s senior leadership team. He’ll decide from there what makes sense to integrate and what does not.

In near term Microsoft will make no changes in reporting relationships. Nadella said,

This approach is designed to keep the LinkedIn team focused on driving results while simultaneously partnering on product integration plans with the Office 365 and Dynamics teams.

During the integration, Microsoft will pick key projects where they can go deep together that will ultimately result in new experiences for customers.

Microsoft acquired Nokia in 2013 for $7 billion dollars. It is considered one of the worst tech acquisitions in history and the company had to write off $7.6 billion in July, 2015, mostly on account of the deal. Though the situation is entirely different in case of LinkedIn, but Microsoft has to turn around a lot of things to make this acquisition worth.

The world is watching closely.