Episode II: The Cloud Wars

On June 13, Microsoft announced it would take over LinkedIn in a $26.2 billion cash deal; it’s biggest acquisition to date.  Microsoft plans to merge its “professional cloud” with LinkedIn’s “professional network,” to put users’ LinkedIn profiles at the center of standard Microsoft products like Outlook, Excel and Skype.

Additionally, Microsoft wants LinkedIn’s data about companies’ workers for use with its digital assistant, Cortana.  CEO Satya Nadella described the Cortana experience to investors, saying:

“Just imagine you’re walking into a meeting, and Cortana now wakes up and tells you about the people you’re meeting for the first time, but tells you all the things that you want to know before walking into meeting someone.”

The deal indicates Microsoft’s commitment to battling Amazon and Google in the “cloud wars.”  “The cloud” refers to the management of data through the Internet rather than users’ computers.  It’s what allows users to start a program or make a purchase on one device, and pick it up on another.  Cloud spending in 2015 reached $175 billion and is projected to top $315 billion by 2019.  Still, Microsoft’s deal with LinkedIn has been described as “essentially uniting one boring technology company with another.”

Microsoft will pay $196 per share, a steal made possible by LinkedIn’s 40 percent tumble in the stock market in February.  Just last fall, LinkedIn’s shares traded for over $269 each.  At the close of last Friday, the stock price was $131.08.  Critics note that LinkedIn has failed to demonstrate that it can further capitalize on its 160 million visiting members and diversify its business.

Still, in comparison to other recent Microsoft acquisitions, this deal is somewhat promising.  Microsoft has struggled to expand like Amazon and Google have, but not for a lack of trying.  In 2014, Microsoft paid nearly $9.4 billion to acquire Nokia’s cellphone business, and in 2007, more than $6 billion to acquire aQuantive, an Internet advertising company.  These deals performed poorly, and Microsoft wrote off most of their values.  Between 2005 and 2008, Microsoft bought more than ten companies a year.  In 2006 it set a company record by buying eighteen.  If Microsoft executed the acquisition it discussed with LinkedIn a little over a decade ago, however, it would have been able to take over the company for a mere $250 million.

The new deal allows LinkedIn to remain a fully independent entity.  Its CEO, Jeff Weiner, will report directly to Nadella instead of a board of directors, and LinkedIn staff, titles and culture will survive the takeover.  Facebook uses the same organizational structure with Instagram and Whatsapp, acquired in 2012 and 2014, respectively.

Weiner expressed optimism in a letter posted to LinkedIn on June 13, stating, “In order to pursue our mission and vision, and to do so in a way consistent with our culture and values, we need to control our own destiny.  That, above all else, is the most important rationale behind today’s announcement.”

The deal comes as surprise to the industry, and now has insiders wondering if it marks the end of social media’s “golden era.”  Some predict that Twitter, whose shares increased six percent after Microsoft’s announcement, will seek its own buyout.  Twitter, like LinkedIn, has recently struggled to engage its users.  With $100 billion in cash and short-term investments, Microsoft, too, may still look to play the market.

Rachel Raimondi is a third year law student at Wake Forest University School of Law.  She holds a Bachelor of Arts in Communication from the University at Buffalo.  Upon graduation, she intends to practice transactional law.