Microsoft’s $US26b takeover of LinkedIn: It’s all about your data and the algorithm

This morning a US analyst weighed in with one theory on why Microsoft would pay $US26.2 billion to buy LinkedIn:

Connecting LinkedIn directly to Microsoft Office could help attendees of meetings learn more about one another directly from invitations in their calendars. Sales representatives could pick up useful titbits of background on potential customers from LinkedIn data. LinkedIn could also be plugged into Dynamics, Microsoft’s competitor to Salesforce in the customer relationship management space.

Here’s another.

Local cloud computing commentator Ben Kepes says yes, Microsoft will use the deal to boost Office and Outlook. But that’s not a unique selling point. Lots of software already lets you link to someone’s LinkedIn profile.

Rather he sees it as being all about the data: specifically, the treasure trove of information LinkedIn holds about you, and the 433 million other white collar workers who have uploaded profiles and mapped their connections (admittedly, only 25% seem to use it at least once a month).

Market watchers will now  have to see exactly how Microsoft monetises that LinkedIn data – but it could well be in a manner completely divorced from LinkedIn’s core activities.

Last year, IBM bought The Weather Company, the outfit behind The Weather Channel, Mr Kepes notes.

“They didn’t do that because they wanted everybody to have really good weather forecasts. They did it because The Weather Company has a huge amount of data behind it and IBM can put that into its big data analytics Watson machine and crunch a bunch of numbers to basically make its analytics more accurate. Microsoft could be thinking it could do a similar thing with the LinkedIn data with its big data offering on Azure [Microsoft’s cloud computing platform]." To put it another way, LinkedIn has a clever algorithm (a set of operations that tells a computer what calculations to run on what data) and Microsoft wants it.

Will it prove to be worth $US26 billion?

“I’d be very surprised if it was. Will it be able to be applied to other parts of the Microsoft portfolio to add some kind of incremental value? Yes but they sure as hell didn’t have to pay $US26 billion for that.”

Microsoft has a recent history of stuffing up deals. Witness its $US7.6 billion Nokia write-off. How does Mr Kepes rate its $US8.5 billion purchase of Skype or the $1.2 billion it forked over for corporate chat app Yammer?

“Skype, not so bad. But Yammer’s been a bit of a disaster, to be honest," he says.

“The interesting thing is that Mr Nadella [Microsoft CEO Satya Nadella] has said he’s going to do this acquisition at arm’s length; kind of the way Facebook did Instagram. Whether or Microsoft has the culture to actually leave an acquired company alone – especially after they’ve spent this much money on it – is yet to be known. But their track record isn’t fantastic with these big-ticket acquisitions.”

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