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social mediaMicrosoft has made a play to enter the social market after announcing it has entered into a definitive agreement to acquire LinkedIn for $26.2 billion, reports Telecoms.com.

The announcement will create one of the largest cloud acquisitions this year, with LinkedIn shares jumping 47% following the news. During the same period Microsoft shares dropped 3%, possibly indicating some scepticism in the market.

“This deal brings together the world’s leading professional cloud with the world’s leading professional network,” said Satya Nadella, CEO of Microsoft in a note to employees. “I have been learning about LinkedIn for some time while also reflecting on how networks can truly differentiate cloud services.”

Microsoft does already play a role within the social media market, but more from the perspective of providing tools for online advertisers and media agencies. Although the LinkedIn purchase is almost 50% above market value, it could be seen as a much safer play than attempting to crack the social market organically. Google and Apple have seemingly learnt this lesson the harder way, launching Google+ and iTunes Ping respectively, neither of which seemed to have gathered much momentum.

Advertising revenues may be attractive to executives at Microsoft, the move could fall into the wider strategy of being the all-encompassing enterprise IT vendor. Research from JPMorgan highlighted Microsoft is valued as the most important vendor in the IT space due to the broad range of offerings. While others specialize in individual areas, Microsoft has created its position as the ‘one-stop-shop’ enterprise IT vendor. The acquisition of the ‘enterprise social media network’ could fill a whole in the portfolio, building on the theme of collaboration.

“We are in pursuit of a common mission centred on empowering people and organizations,” said Nadella in a note to employees. “Along with the new growth in our Office 365 commercial and Dynamics businesses this deal is key to our bold ambition to reinvent productivity and business processes.

“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. This combination will make it possible for new experiences such as a LinkedIn newsfeed that serves up articles based on the project you are working on and Office suggesting an expert to connect with via LinkedIn to help with a task you’re trying to complete.”

While the two companies could be seen as complimentary, it would appear a combination of the two would create a total addressable market (TAM) of $315 billion. According to a joint slide-deck shared by the team, LinkedIn has a TAM of $115 billion where as Microsoft can account for $200 billion. The team believe by joining forces and further diversifying the offering, this number can be further increased through differentiated experiences.

LinkedIn is billed as the largest professional social network globally, and has been growing steadily to 433 million members in recent years. The team have introduced a number of new features in recent months which it credits for increased engagement levels as well as membership numbers. Over the last 12 months the team at LinkedIn launched a new version of its mobile app, acquired online learning platform Lynda.com and launched a Recruiter product for its enterprise customers.

The number of social media users worldwide is estimated at 2.22 billion, with Facebook controlling the largest share at 1.59 billion. Judging the market value of social on the whole gives widely varied results, though Facebook did announce revenues for Q1 of $5.4 billion, a 52% year-on-year growth. The company now claims to have 3 million active advertisers on Facebook and over 200,000 on Instagram.

While the news will dominate technology headlines, there will still be some questions surrounding the integration of LinkedIn into the wider Microsoft portfolio. Office was a prominent character in Nadella’s email to employees, though whether this means LinkedIn will be incorporated into Office proposition has not been stated. For some, the role of social in the workplace is still unclear.

Following the completion of the deal which is expected by the close of the year, Jeff Weiner will remain LinkedIn CEO, reporting into Nadella.

@BizCloud
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