Business Impact

How to Parse the Microsoft-LinkedIn Deal

Microsoft’s biggest acquisition ever sheds light on CEO Satya Nadella’s vision for business-related computing services.

Microsoft’s CEO, Satya Nadella, has made a point of saying the company is now “mobile first, cloud first.” That’s a way to refocus Microsoft on technologies other than the one (the PC) that made the company what it is. But just what that will mean in practice has been a bit hard to imagine, and not only because you can’t be two things first.

There might be more clarity after Nadella's announcement on Monday that he intends to buy LinkedIn for $26 billion. In some ways this deal, Microsoft’s largest acquisition ever, feels like something his predecessor, Steve Ballmer, might have undertaken in an attempt to be a player in social networking and to get more revenue from the public Web—kind of like his bid in 2008 to buy Yahoo for more than $44 billion. This is not to say that LinkedIn is as troubled as Yahoo; it’s got a fast-growing business with nearly $3 billion in annual revenue from job postings and premium subscriptions, but it lost $165 million last year and $15 million the year before that. But it’s hard to instantly see how LinkedIn will help the “cloud first” Microsoft steal some of Amazon’s leading share of the market for cloud services.

Nadella spun the deal by saying Microsoft and LinkedIn will combine “the professional cloud and professional network.” But all that really means is that Microsoft now has more services it can offer companies. Some of those could be interesting: imagine seeing details from LinkedIn about the people who show up in your Outlook calendar or e-mails. Having that kind of information all in one place, at a glance, can be especially useful on a mobile device. And perhaps Microsoft can come up with ways to make such functions work best for companies that host their operations in a Microsoft cloud rather than on Amazon servers. That would appear to be Nadella’s (very big) bet.

(Read more: Wall Street Journal, New York Times)