Microsoft buys LinkedIn for $26.2 billion in 2016
Microsoft
is purchasing LinkedIn for $26.2 billion in cash. The deal, which has already
been approved by the two companies’ boards, is expected to be completed by the
end of the year.
Six months after Microsoft
announced plans to pay more than $26 billion for LinkedIn, we now know even
more about why the career-focused social networking site was so valuable.
Today, Microsoft revealed that LinkedIn founder Reid Hoffman has joined its
board. It’s impossible to overestimate the significance of this move for
Microsoft. CEO Satya Nadella is three years into a turnaround that few people
believed possible. When he was promoted to CEO in February 2014, Microsoft was
in a bad place. Six months earlier, the company had posted its first-ever
quarterly loss. Steve Ballmer announced he would
step down, but before leaving, he pushed through the acquisition of Nokia. It
was a costly mistake. Microsoft ended up paying $7.9 billion for the Finnish
cellphone maker, according to an April 2015 SEC filing; the company wrote off
nearly the entire sum in the final quarter of 2015.
Microsoft’s chief problem was this: Though the Redmond-ites made a
lot of money, the company’s core business was declining, a dynamic that was set
in motion more than a decade ago, when nearly every enterprise owned and ran
Windows-powered PCs and servers. Microsoft had parked itself in the middle of
Innovator Dilemma-land. The company had little incentive to invest in future
businesses that might disrupt the business it was already in.
It also had a lousy reputation, particularly in Silicon Valley,
where camaraderie and collaboration are hallmarks of tech’s evolution and every
major player enjoys frenemy status with its adversaries. Microsoft wasn’t a
company that partnered with outsiders. It scorned the open-source community and
looked down its nose at tech upstarts. In a public conversation with Marc
Andreessen in October 2014, investor Peter Thiel called Microsoft a bet
“against technological innovation.”
In an early analyst call,
Nadella quotedphilosopher Friedrich Nietzsche, telling listeners that Microsoft
must have “courage in the face of reality.” Three years later, this courage is
paying off. Microsoft has been profitable for the last four quarters, and in
January, it surpassed analyst expectations, doubling its revenue from its
cloud-computing offering, Azure. Its search engine, Bing, has a hold on one fifth of the search market (even more, if you
add AOL and Yahoo search, which are powered by Bing). With the launch of
Microsoft Teams, it has aimed squarely at competitor Slack. It’s well on its
way to transforming into a company that sells services in the cloud. Meanwhile,
it has put $35 billion toward R&D for ambitious projects such as its mixed
reality headset, the HoloLens, attempting to establish itself as a company that
can bring credible innovations to market.
To succeed, however, Nadella must do more than fix the company’s
business. He must turn around Microsoft’s lethargic, boastful, go-it-alone
reputation — especially in clubby Silicon Valley where deals are made over
dinners, the most talented entrepreneurs have their pick of big-name investors,
and talent is hard to woo. In the constant competition over engineers,
designers and product managers, Microsoft must establish itself as a smart
place to do great work. In other words, in Silicon Valley it’s gotta be cool.
There’s no doubt Nadella
has improved the company’s relationship with developers, partners, and
investors outside its Redmond headquarters—particularly with those in the
Valley. The company made peace with the open-source community, and one of its
top engineers even said it wasn’t out of the question that one day Microsoft could
open-source the code that underpins the company’s Windows
operating system, its crown jewels. Nadella has also spent the past few years
getting to know the startup founders the company once ignored. In October 2014,
I went to hear him speak at a developers’ conference in London and witnessed
firsthand the new amiable approach he was advancing. Since then, he has only
amplified his efforts. But even if they’ve enjoyed a warmer reception in recent
years, Nadella’s team of top executives and board members are, for the most
part, not valley insiders. (The exception would be former Symantec CEO John
Thompson, who chairs Microsoft’s board and helped with many Valley
introductions early on.)
Hoffman
earned his credentials over two decades of startup building and nurturing. He
started the very first social networking website, Socialnet.com, back in 1997
when Mark Zuckerberg was still in middle school. He met Facebook’s plucky
founder before the kid dropped out of Harvard, and he helped broker the
startup’s first $500,000 investment (kicking in $40,000 of his own). He was a
founding board member at PayPal, and helped start LinkedIn back when most execs
thought the idea of exposing your little black book was career suicide.
LinkedIn now lays claim to more than 400 million members. In 2010, Hoffman
joined venture firm Greylock, managing a seed fund that has invested in
Groupon, Dropbox, Pandora, Tumblr, Shopkick, and Airbnb, where he’s a board
observer. His list of for-profit and nonprofit board seats is lengthy.
There are few people in
Silicon Valley as connected to its heart as Hoffman. In fact, Hoffman may be the Valley’s heart—a rhythmic muscle
responsible for the optimal circulation that keeps it in good health. With a
phone call or an email, Hoffman can get just about anyone in tech within
minutes. He knows who to call. And in a competitive industry, he has gained his
reputation through trading favors. He’s the quintessential nice guy. A few
years ago, I called up entrepreneurs to ask them about Hoffman for a profile
that never ran. Serial entrepreneur Bret Taylor told me, “He spent so much time
just being a nice guy, and it made me think I have to be that way, too.”
At the time, I asked Peter Thiel what made Hoffman tick. “Once
years ago, the question came up about the meaning of life,” Thiel told me then.
“He said he thought it had something to do with the relationships you build
along the way.”
Hoffman and Nadella met
shortly after Nadella was appointed Microsoft’s CEO. “He was tapping me as the
Silicon Valley expert, and I was tapping him as the leader of this massive
technology company that had a huge amount of impact on how corporations and
organizations worked,” Hoffman told me in an interview when the LinkedIn
acquisition was announced. Increasingly, their conversations turned to
leadership issues. Hoffman was impressed by the culture Nadella was building at
Microsoft.
As
a board member, Hoffman will be Microsoft’s ambassador in the Valley. Among a
core group of constituents for whom Microsoft may not factor into conversation,
Hoffman will work to raise its profile. The trickle-down effect has the
potential to be tremendous as Microsoft competes for partners and talent.
The importance of reputation to a successful turnaround cannot be
understated. As evidenced by Uber’s recent debacles, reputations are stubbornly
difficult to dislodge. Even if a business has a sound foundation, how people
view it will have a strong impact on whether it can succeed. And when Reid
Hoffman calls an entrepreneur or an engineer on behalf of Microsoft, you can
bet they will take it more positively.
https://www.weforum.org/agenda/2015/10/the-12-biggest-technology-acquisitions-of-all-time/
https://www.wired.com/2017/03/now-we-know-why-microsoft-bought-linkedin/
