Last week, Microsoft wrote a $26.2 billion check to acquire LinkedIn. Since Satya Nadella has been appointed as CEO in 2014, Microsoft's main focus is to continue leading tech innovations in the business world. With LinkedIn being the top social network for millions of professionals, this may seem like a match made in heaven, but is the connection really going to be endorsed?
Here is why we think that acquiring LinkedIn is totally a bad career move for Microsoft:
LinkedIn's Stalled Growth
Despite strong quarterly revenue growth of 34 percent YoY and a higher than projected EBITDA ($249 million vs. projected $210 million in the last quarter of 2015), the LinkedIn stock managed to tank by 40 percent just overnight in February 2016. Since 40 percent of LinkedIn’s growth occurs outside the U.S. , this drop may be largely attributed to macroeconomic issues abroad. Shutting down one of the company's most profitable services, Lead Accelerator, less than a year after launching the service may be another reason for the stock slide.
Declining Talent Solutions Segment
Talent Solutions, currently LinkedIn's main source of revenue and a service that arms recruiters with tools that leverage their connections to find the next best hire, has been seeing a significant slowdown over the past few months. The company estimates that the growth of this segment, which is responsible for two-thirds of the revenue, could decline from 30 percent in 2015 to mid-20 percent this year. This decline means that other companies, including startups that provide unique talent solutions, can (and will) step up to compete for an even bigger chunk of the recruitment software market.
Microsoft's Terrible History of Acquiring Businesses
The bullish $26.2 billion acquisition is the largest purchase of a software company ever made. Microsoft’s acquisition looms in the shadow of other failed ventures including the $6 billion purchase of aQuantive in 2007, and $7.9 billion acquisition of Nokia’s handset business in 2014, which both ended up as almost complete write-offs.
Microsoft is paying $260 per active user per month on LinkedIn, which is a pretty good deal for the shareholders. So to keep them happy, Microsoft will have to step up the game in acquiring new users quickly or present a plan on how this investment can pay off. LinkedIn makes most of its money by selling platinum memberships to corporate recruiters, who then use LinkedIn to fill open positions. With 430 million registered users, critics are wondering how much bigger the platform can become before hitting a growth plateau.
A Possible Ban from Large Companies
Microsoft's idea is to make LinkedIn a main social media site where professionals go for fresh news and to catch up with their connections. Since for many companies, LinkedIn is the only social network that is allowed for use by the employees, hiring managers will argue that spending more time on LinkedIn will create unnecessary distractions, ultimately biting into productivity and motivation. Some large firms have already restricted or blocked employee access to the network.
LinkedIn’s acquisition is a sign of what’s to come for future technology companies. Investors are curious as to what other companies Microsoft may want to acquire next. Likely candidates include Twitter, Yelp, and Zynga due to their large user base and natural synergy within existing business infrastructure. We can only guess.
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