Why did Microsoft acquire LinkedIn?

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Microsoft is pulling out the big guns once again and this time, LinkedIn is in its crosshairs. The company bought the popular professional social network for a cool $26.2 billion, Microsoft’s largest acquisition since Satya Nadella started as CEO. This is no doubt a big boon for LinkedIn, but what does it mean for Microsoft?

No one ever once saw LinkedIn as a company that Microsoft would be interested in, but Satya Nadella is very interested and hopeful of the future. In his memo, the Microsoft CEO outlined the reasoning behind this major decision. From our point of view, this decision could be one that defines Nadella as a great Microsoft CEO or the decision that gets him fired a few years from now.

Why did Microsoft choose to grab LinkedIn for $26.2 billion? For those who have not been keeping up with the popular business related social network, LinkedIn is a network with over 400 million users and 2 million paid subscribers. Microsoft at the moment has over 1.2 billion Office users, but lacks a social graph of its own. Because of this, Microsoft must rely on Facebook and other third-party services. With the purchase of LinkedIn, the software giant now has its own professionally-oriented social graph tool.

Not only will Microsoft get its own social graph tool to play around with, but it can transform Office 365 into a more valuable service. We envision Microsoft adding LinkedIn Premium to Office 365 in hopes to get more people to use it. Bear in mind that despite the over 2 million people who take advantage of LinkedIn Premium every year, the professional social network is not making a lot of money.

LinkedIn Premium costs $30 to $120 per month, and it only adds to 11% of the company’s overall revenue. Advertisements and other ventures help to bring in the remaining 89% revenue per quarter. Furthermore, Microsoft will also get talented people to join the company, folks who can help further its goals when it comes down to the Internet and the cloud.

We can look at we’ve talked about above as being one of the many reasons why the software giant decided to spend $196 per share in cash just to have ownership of LinkedIn. That’s a lot of money, but Microsoft is hoping it can regain its investment and then some in the coming years.

With strong competition in the social network business, it is just a matter of time before Facebook, Twitter, and even Google realize they need to compete with what Microsoft is offering, and that’s when the difficulty will arise. Microsoft should take the opportunity to cement LinkedIn in its services before the competition can act.

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