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Will Microsoft’s LinkedIn Acquisition Succeed? Look Back at Yammer

Ed Terpening
Screen Shot 2016-06-14 at 9.15.57 AM

Mergers and acquisitions are hard, really hard to get right. In my long Silicon Valley career, I’ve worked for a number of brands that were pretty good at it—including Cisco, CNET, and Wells Fargo—but the history of M&A in tech is littered with mis-steps, including Microsoft. While the integration of the world’s leading back-office productivity cloud and the largest professional social network seems pretty good in theory, there are both some downsides and opportunities to keep in mind.

Downsides…

Where’s Yammer?

My point of view of Microsoft’s acquisition starts with the software giant’s $1.2 billion acquisition of Yammer in 2012. In that deal, Yammer didn’t continue as a company, but rather was absorbed into the Microsoft Office Division. The June 2012 press release cited as one example of value the integration of Yammer and Office 365. Yet, according to Eweek, Microsoft only started to make Yammer broadly available in February this year, four years after the acquisition—and this occurred in the best of situations, where Yammer was actually part of the Microsoft team. Said Kirk Koenigsbauer, corporate vice president of Microsoft Office “It also marks the culmination of our foundational efforts—including moving Yammer into Microsoft managed data centers and undertaking identity work with Azure Active Directory—to bring Yammer fully into Office 365”. Yes, four years later.

Will Microsoft meet its goals any easier (or faster) with LinkedIn operating as a subsidiary? Said Yammer’s founder at the time it was acquired, “When we started Yammer four years ago, we set out to do something big,” David Sacks said. “We had a vision for how social networking could change the way we work. Joining Microsoft will accelerate that vision and give us access to the technologies, expertise and resources we’ll need to scale and innovate.” Yet the adoption of Yammer worldwide seems to have peeked at around 10% over the past 3 years:

yammer

Source: Global Web Index, % of All Internet Users Who Report Using Yammer

No doubt the 2012-2013 spike in adoption was aided by Microsoft’s sales machine, but after harvesting that low-hanging fruit, adoption of the platform appears to have stalled—with upstarts like Slack now the new darlings of employee collaboration.

Aside from the Yammer acquisition (and where it fits in the Microsoft social ecosystem), Microsoft has a poor history of reaping the benefits of integration. According to CNBC, it wrote down $9.5 billion for Nokia without making a dent in the global smartphone business; and according to Bloomberg, “Skype hasn’t matched the promise of integrating into other products after the $8.5 billion deal in 2011.”

Privacy Concerns

The combination of LinkedIn’s social graph and Microsoft’s Azure Active Directory (which gives users single sign-on access to thousands of cloud applications) and its Discovery CRM tool could create the most detailed picture of business professionals’ relationships and work products ever. In his letter to employees, Microsoft CEO Satya Nadella writes about the “vibrant network that brings together a professional's information in LinkedIn's public network with the information in Office 365… This combination will make it possible for new experiences such as a LinkedIn newsfeed that serves up articles based on the project you are working on.” To me, that sounds like a security and privacy nightmare ready to happen. Will internal company documents get published to LinkedIn (or status updates, like “I’m open to new job opportunities”) show up in company newsfeeds or public posts? Will competitors gleam more information than they do today, based on LinkedIn status updates?

Recruiting Business

Two-thirds of LinkedIn’s business comes from “Talent Solutions” (recruiting), and yet the presentation on the deal barely mentions this, the life-blood of LinkedIn. In his note to employees, Microsoft CEO Satya Nadella writes about one use case: "…Office suggesting an expert to connect with via LinkedIn to help with a task you're trying to complete.” Really? Do you want Microsoft to scan your Office documents and recommend talent? Although MS Office may not be the right entry point for recruiting talent, I can see how users would be able to initiate a talent search in the context of their work (and support the “gig economy”), but it seems they have a lot yet to figure out.

The “Poison Pill”

Engineered into the deal is a kind of “poison pill“ that would discourage LinkedIn shareholders from voting the acquisition down. LinkedIn would have to pay Microsoft $720 million as a “termination fee” (according to the SEC filing) if shareholders don’t vote for the deal.   That seems like a pretty hefty barrier and makes me wonder why it’s in place, even with Microsoft paying a 50% premium for the stock—in cash, no less!

Opportunities…

No doubt, there is significant upside potential if the partnership succeeds:

Microsoft Dynamics CRM System

Although clearly the leader in CRM, today’s announcement must have the Salesforce team thinking pretty deeply about impact.   What if LinkedIn shuts off part its data feed or API in favor of exclusive access to Microsoft? A truly integrated Dynamics, Office and LinkedIn would have unprecedented insight into buyers that would be very difficult for Salesforce to replicate. The right integration could quickly propel Microsoft to the Social Sales leader.

Salesforce has professional connection graphs silo’d by company, with lots of information similar to LinkedIn, but even deeper on the sales side. What if Salesforce could find a way to create a data mart for those connections across silos, in a way that added clear value to businesses, but at the same time protected the privacy of that information? If Salesforce can find a way to connect their data across silos and maintain privacy, they could use it as a valuable counter-punch to this deal.

This deal could also help on another customer front: employee advocacy. In our recent social media employee advocacy research, we found a very strong correlation between employees who report using social collaborative tools at work, and advocating outside of work (80%). These employees have built a strong internal social business culture.   A stronger suite of social tools in Microsoft’s client businesses could similarly help propel employee advocacy (although it’s not clear if Yammer integration has had that impact).

Revenue Path

I’m still a hold-out, I use LinkedIn for free, but not for lack of constant pitches by LinkedIn. Their path towards locking down functionality for paid users is really annoying. How—or will—that change post integration is an open question. One could argue that the integration of LinkedIn could release some of the revenue pressure on them since Microsoft could introduce bundling options to buy premium access with other Microsoft products. I see that as most likely.

Engineering

Sorry, but I’ve never been a fan of the way LinkedIn’s products are engineered. Trouble with inbox synchronization between mobile and website versions; its security breach; and its newly revamped mobile app, which basically just looks more like Facebook than ever.

Content

Where Microsoft may help is in driving more content to LinkedIn through posts by users, which—at least for employee advocacy—is less than half that of Facebook. It’s easy to see a world in which the internal content cloud in a Microsoft shop can be harnessed as a content engine to improve Linkedin’s updates/published posts numbers. In the PPT that accompanied the announcement, they describe a “daily intelligent newsfeed”, which “will be constantly informed and tailored to the happening at work like the meetings coming up and projects underway”. Hmm, isn’t that what Yammer is for?

EmployeeAdvocacySocialNetwork

Next up?

This deal could represent a tipping point for further mergers and acquisitions in this space. Twitter’s stock has been down almost 60% from a year ago—and after today’s announcement, experienced an 8% lift in early morning trading, ending up the day almost 4%. Will this impact “Facebook at Work”? If LinkedIn groups integrate well with the Microsoft enterprise software suite, it could offer businesses a viable alternative. That said, it’s unclear to me how seriously Facebook takes the enterprise market. As Charlene Li pointed out in her post on this topic today, Facebook at Work didn’t even appear on the 10-year roadmap Zuckerberg presented at F8 this year, and when I asked a Facebook communications rep for time at F8 to speak to someone working on Facebook at Work, I got radio silence.