Does Microsoft’s Acquisition of LinkedIn Highlight the Struggles of Social Media Platforms?

July 1, 2016

Worth roughly $ 407 billion dollars, making them the 23rd biggest public company in the world, it’s hardly surprising that Microsoft is in the business of acquisitions. In fact, a quick Google search will show you that Microsoft has a whopping 196 acquisitions under their belt, at an average of six companies a year. This includes big names such as Skype, Nokia, and most recently, LinkedIn.

Generally, but not always, a business is acquired if it is struggling so that the more profitable, more stable acquirer can steady the ship, or there is a merger where two business ideologies, ideas, and visions align. There is a clear alignment between LinkedIn and Microsoft in many areas, which we will examine later, but this is an acquisition because of struggles, not a merger because of similarities. Does Microsoft’s latest acquisition of LinkedIn highlight the struggles of social media platforms?

The Struggles of Social Media Platforms

There can be no denying the power and dominance that social media platforms have had on the world. They’ve gone from being gimmicky platforms for teenagers, such as with Bebo and MySpace, to serious, established and business-driven platforms. If a business doesn’t have a social media presence nowadays, then they are already miles behind their competition. To reiterate social media’s influence, of the 7.395 billion people on the planet, a huge 2.307 billion of these are on social media.

So why is it then that social media platforms seem to struggle? Starting with LinkedIn, it has a number of problems. Despite a large user base of over 430 million members, the publication of a weak forecast in February saw shares fall by 43% as investors found themselves spooked. This was alongside the statistic that company growth in 2015 Q4 was at 20% when it had been at 56% a year earlier in the same quarter. LinkedIn was also noticing a slowdown in the growth of members, but also unique visitors to the site, and so 2015 was a poor year for the business-networking platform regarding progressing the business forward. But it’s not only LinkedIn that is having problems. Twitter is also undergoing serious problems, with the company losing over $ 15 billion in stock value last year and its user base growing by only 1.3% in Q3 of 2015, which to investors and shareholders is essentially 0%. Even Facebook, the king of social media, isn’t completely untouchable from problems. While they have no worries in terms of revenue or user base, and they won’t need to look for an acquirer anytime soon, they are built on a platform of their users creating and sharing content, and people are beginning to share a lot less.

Each platform has a very clear business strategy and has filled a niche in the market. LinkedIn is essentially ‘upload your CV, and you may get hired’, Twitter is about sharing short snippets of content and Facebook is a global connector of people. Each is useful and different in its own sense, but as they are built on a platform of creating and sharing content it can be difficult to monetise, or indeed get users to pay for, services.

Do Social Media Platforms Need to Be Acquired?

Facebook aside, most social media platforms have struggled to monetise their services and kickstart a high level of growth. Twitter has tried with sponsored ads, but there are plenty of articles on the internet detailing how to block these ads, which many users have made use of. LinkedIn has tried its own approaches, with spammy e-mails of “Who’s Looking At Your Profile” to entice you back to the site, alongside other features such as a Facebook newsfeed and LinkedIn Influencers such as Richard Branson.

Many of these approaches simply haven’t worked, hence the need for Microsoft to step in for LinkedIn. The news of the acquisition even led to Twitter stocks rising by 8%, clearly highlighting the interest in the market for more social media acquisitions. A similar situation occurred in 2015 when Yelp, after exploring avenues of selling, saw its stock rise by 15%.

Social media platforms aren’t built around constantly selling a product or service, unless they require users to pay a monthly subscription, which the big name players don’t. All of the biggest social media platforms, sites like Facebook, Twitter, and LinkedIn, have large user bases, but the shareholders and investors want to see constant and consistent levels of growth, and this seems to be stagnating eventually for each platform. This is naturally going to occur as social media platforms can’t expect everyone on the planet to sign up to their platform, but if these users aren’t paying a subscription fee and are looking for ways to block monetising adverts and delete spammy marketing emails, then clearly social networks have a problem.

The Benefits of LinkedIn for Microsoft

This is where a large corporation such as Microsoft can step in with the structure, support and investment to help put platforms like LinkedIn back on the right track. But for Microsoft, it also highlights a smart and savvy business move.

Microsoft had previously failed to acquire Salesforce, the CRM software and cloud computing solutions company, after making an offer of $ 50 billion which was countered by Salesforce CEO with $ 70 billion. Microsoft had looked to acquire them to help bolster their cloud CRM offering, and by failing to follow through with the deal, they ultimately became Salesforce’s biggest competitor.

By acquiring LinkedIn, Microsoft can make use of their large user base to further strengthen their service offerings, or as Microsoft CEO Satya Nadella says, it is “the coming together of the professional cloud and the professional network.” LinkedIn’s user base, mostly comprised of professional businessmen and women, is exactly who Microsoft target, and so now they have over 400 million members they can more easily aim for. They can use this large user base to gather and analyse large amounts of data and information to produce insights for future products and services. They can also integrate their products with LinkedIn’s, who have also made acquisitions of their own, including the online company teaching business Lynda.

However, it doesn’t seem to be purely business motivated. There does seem to be a real common goal between the two companies, with Microsoft wanting to “empower every person and every organisation on the planet to achieve more”, and LinkedIn wanting to “connect the world’s professionals to make them more productive and successful.”

Microsoft acquires LinkedIn Credit: Microsoft

Alongside this, this has in no way been an aggressive takeover. Microsoft will still be allowing LinkedIn to operate as an independent entity and Jeff Weiner, the current CEO, will remain so. Most employees will retain their jobs with the same managers, with the only employees that are being let go are the ones whose jobs are focused on “LinkedIn’s status as a publicly traded company.” Weiner was, however, quick to stress that LinkedIn would be helping these employees to help find their next place of employment.

What Does This Mean for the Future of Social Media Platforms?

This unaggressive, amiable, beneficial and maybe slightly over-priced takeover, could spell a new wave of takeovers for other social media platforms. Big corporations may begin to look into ways that they could incorporate social media services into their own offerings, aligning common goals while still driving forward the growth of these platforms. Mr. Adam Bullas, Social Media Manager at Opace says “Social networks like LinkedIn are now some of the most important websites on the planet, and because of that, there are higher expectations when it comes to performance, revenue and growth. We don’t expect a dramatic change in the way that platforms like LinkedIn operate or the benefits that these platforms provide to businesses, but we do expect to see the owners of these social media platforms change to help these companies adapt to the struggles that they face with growth. Social media has clearly changed the way that we do business but it’s very likely that businesses will also change the way that social media companies operate, and indeed, survive.”

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