Microsoft Buys LinkedIn for $26 Billion in Its Largest Acquisition to Date

In a stunning move, Microsoft on Monday announced its plan to buy professional social network LinkedIn for $26.2 billion in cash and debt, which, if successful, would make it Microsoft's highest-valued acquisition in its 41-year history.

The deal has already been approved by the boards of directors of both companies and is expected to close by year's end. Microsoft said LinkedIn will remain independent, with LinkedIn's Jeff Weiner remaining as its CEO.

Besides Microsoft's failed bid to acquire Yahoo for $44.6 billion back in 2008, the LinkedIn buy is three times the value of Microsoft's acquisition of Skype in 2011, which had been Microsoft's largest deal until now. (See "How LinkedIn Stacks Up Against Other Microsoft Acquisitions.")

By acquiring LinkedIn for a 50 percent premium over its closing price on Friday, Microsoft CEO Satya Nadella is making his biggest move yet to grow his company's business. Despite Microsoft making huge strides in reshaping itself for the post-PC era, investors and analysts have shown impatience with its pace of growth.

Microsoft's decision to acquire LinkedIn also demonstrates that the company is looking to play in a market it has largely avoided. While Microsoft acquired social networking technology with Yammer and invested $240 million in Facebook in 2007, this deal marks the first time Microsoft will try to run a huge social network in a market dominated by Facebook and Twitter. LinkedIn boasts a roster of 433 million registered users, of which 105 million unique visitors access their accounts at least once a month.

The deal raises questions about what benefits adding a huge public social network will bring to Microsoft's existing portfolio. In a 90-second video created by Microsoft, Nadella and Weiner gave brief statements on the rationale for the deal. Nadella said he has long contemplated acquiring LinkedIn, believing it fits in with Microsoft's overall productivity-and-platforms focus.

"For sure, I am a deep believer in productivity tools and communication tools because that's what empowers people to be able to be great at their job," Nadella said in the video. "But think about taking that, and connecting it with the professional network and really having the entirety of what is your professional life be enhanced, more empowered, where you're acquiring new skills and being more successful in your current job and finding a greater, bigger next job. That's that vision. "

Weiner said that during the discussions that led up to the deal, both he and Nadella agreed their companies were aligned in two key areas: purpose and structure. "Satya said time and time again, 'You're going to have your independence, we have this shared sense of alignment, so let's dream big, let's think about what's possible.' That's going to be first principle," Weiner said.

Keeping an acquired company like LinkedIn independent is not unusual for Microsoft, at least at the outset of such deals. When Microsoft acquired Yammer, Skype and Nokia's handset business -- three of its largest acquisitions -- similar structures were established initially, only for the companies to eventually become more integrated into the Microsoft corporate structure. That has had mixed results. Most of the core Yammer team is now gone and Microsoft has pared back most of the Nokia handset operations. Skype has been more successful so far and is evolving into a key component of Office 365.

Microsoft also appears to be betting that leveraging a large and established community of professional users will enable new opportunities. LinkedIn has had more than 45 billion quarterly member page views, which has grown 34 percent year over year. LinkedIn also hosts 7 million job listings, which has grown 101 percent over the past year, while 60 percent of its users access the service from mobile devices.

Initial reaction to the deal has been mostly surprise, with many speculating over the possibilities of linking offerings such as Office 365, SharePoint, Dynamics and Azure in some way. One key task for LinkedIn will be to find ways to engage with many users who find the service has become a platform full of clutter and unwanted connection requests. "Satya Nadella makes bold final attempt to stop LinkedIn from e-mailing him," quipped author Matt Gemmell. Two hours later the comment had been re-Tweeted 817 times.

About the Author

Jeffrey Schwartz is editor of Redmond magazine and also covers cloud computing for Virtualization Review's Cloud Report. In addition, he writes the Channeling the Cloud column for Redmond Channel Partner. Follow him on Twitter @JeffreySchwartz.