SAN FRANCISCO — Microsoft’s deal to buy LinkedIn just lit up the cloud wars.
The giant maker of Windows software missed out on the consumer technology boom. Under CEOSatya Nadella, Microsoft is reaching for riches in the “cloud,” doubling down on software and services delivered over the Internet on a variety of platforms and devices.
With the $26.2 billion acquisition of the Facebook of professional networks, Microsoft is placing a big bet that bringing together its “professional cloud” and LinkedIn’s professional network will help the pair create valuable services for business customers and accelerate Microsoft’s shift from traditional software to the cloud, where it’s taking on fellow titans of technology Amazon.com and Google.
The stakes are high. As more companies realize the benefits of shifting software and data off their own computers, tech giants and a slew of start-ups are battling ever more aggressively for these clients. Cloud spending in 2015 reached $175 billion and is projected to top $315 billion by 2019, according to Gartner.
Analysts say the acquisition, the biggest ever for Microsoft, is part of the tech giant’s intensifying search for mass-market opportunities beyond Office staples such as Word and Excel.
Microsoft needed this kind of deal — there had been speculation of a Salesforce.com acquisition — as Nadella faces off against the most vaunted names in tech, including Amazon’s Jeff Bezos and Google’s new cloud boss Diane Greene.
With the LinkedIn acquisition, Microsoft snares two prizes: the massive amounts of data contained in LinkedIn’s 433 million member profiles that are kept scrupulously up to date by business professionals and to which competitors have no access, and the brainy computer algorithms that crunch that data.
Both could boost LinkedIn and Microsoft Office by making products smarter and more connected. And, if Microsoft makes good on its plans, could position Microsoft as a hub of people’s professional lives. In a presentation, Microsoft showed how a member’s LinkedIn profile would be at the center of other Microsoft-centric aspects of daily work life using products such as Outlook, Excel and Skype. Microsoft plans to link the professional network with its digital assistant Cortana and its customer relationship software.
“With over 400 million users and 100 million plus monthly active users on the LinkedIn platform, they have this opportunity to extend the professional network, similar to what Facebook and Instagram are doing on the consumer side,” said UBS analyst Brent Thill.
The deal, announced Monday, comes at a critical moment for both companies. Microsoft saw the growth of its cloud business slow last quarter. LinkedIn (LNKD) has seen its shares plummet after bracing investors for slower growth in 2016. Competition is increasing for both, as companies such as workplace chat app Slack change how people interact while on the job and professional software is increasingly influenced by popular social networks and messaging apps in the smartphone era.
“In today’s world, the LinkedIn acquisition absolutely gives Microsoft a leg up” in the cloud wars, said Gartner analyst Jenny Sussin. “In the future, it depends on how they make this acquisition work.”
Trading reflected that perspective. LinkedIn, which had fallen 42% so far this year, leaped 47% to $192.21. Microsoft shares (MSFT) slipped nearly 3% to $50.14.
in the ointment? Microsoft has a dismal track record with acquisitions, typically resulting in write downs.
In a break with past acquisitions, LinkedIn will retain its brand and independence and CEO Jeff Weiner will stay on as CEO, reporting to Nadella, Microsoft said Monday.
Even so, said Thill, “this isn’t going to be a walk in the park.”
“This one is going to require a lot of attention to ensure Microsoft gets out of it what it paid for it,” he said.