Based on some historical prices, MSFT got a good buy. To which we may now say, “Good Bye LinkedIn.”
Answer: without question. Look at this chart from Statista, a service I subscribe to and which tracks share prices, EPS, the price of tea in China, you name it. Anyway, if you look at LinkedIn’s share price over the past 5 years or so, you will see that it peaked at a price just over $270, but was trading recently in the $100 to $125 range. What did they know?
Answer: Their subscriber base was not growing consistent with expectations. They had certainly experienced solid growth in the first 4.5 years, but then hit a wall. I for one, quit LinkedIn because I could see no recurring value in it. But aside from the quitters, they were struggling with convincing new subscribers to join, or more importantly, to upgrade into premium services. I am sorry, but the value proposition was not there.
What does Microsoft see? I think the answer lay in the how they anticipate competing with Amazon Web Services (AWS) the leader far and away in cloud-based services. AWS makes most of its money by leveraging the tremendous capacity Amazon the seller has created in its world-wide fulfillment operations. Data centers are cheap, relatively speaking, but WHERE you put them is critical. When one is talking about data redundancy, then one must have more than one data center. When one is talking about five 9’s or six 9’s (SixSigma) of data redundancy, one must have several data centers.
The problem is that once you begin adding to gain redundancy, you are adding capacity that you did need for the base business; hence, excess capacity is created. Bezos and Company figured that they could get the most value out of that excess capacity by selling co-location services, at nearly cost, and thereby corner the market. They did.
Microsoft isn’t concerned about data center capacity. They have plenty. They aren’t concerned with co-location services – that’s a pedestrian business way beneath their pay grade. But here we must consider the service known as Azure, Microsoft’s cloud services platform. They took a different route than Amazon and began offering capacity to the like of SAP, who have partnered with MSFT to provide ERP, CRM and other services that SAP is known for. It was a big win for MSFT, taking a huge chunk of its cloud service platform and handing it over to SAP for a piece of the resulting action.
With LinkedIn, Microsoft is looking more at how they can add value to their Office365 platform, by linking, say, Outlook users with their LinkedIn contacts. Now, that’s a value-add and a big win for Microsoft customers.
Not that I will use it, mind you. I am not in the business of cold-calling-by-email. That is one immediate application. Nor am I into collaboration among team members – there are plenty of other products and services that permit that.
But the acquisition makessense for Microsoft and I am proud of them.
