Microsoft’s Connection With LinkedIn is All About Navigating the Idea Maze

It’s far more useful to compare the LinkedIn deal to the company’s 2011 acquisition of Skype –  and how it was trying to solve the future of work and enterprise collaboration – than to bring up the failed Nokia strategy

Microsoft CEO Satya Nadella's focus has been towards enterprise software over the last two years. Credit: PTI

Microsoft CEO Satya Nadella’s focus has been towards enterprise software over the last two years. Credit: PTI

It is very tempting, as some commentators and analysts have already done, to look at Microsoft’s $26 billion purchase of LinkedIn and determine its fate on the basis of the company’s past acquisitions.

To be fair though, Microsoft’s track record in this area has indeed been questionable. Some of the Redmond-based software giant’s more prominent acquisitions that didn’t quite work out include Hotmail ($500 million), aQuantive ($6.3 billion, later written off), Skype ($8 billion) and Nokia ($7.2 billion, also effectively written off).

The most commonly circulated joke on Microsoft’s acquisitions, which often come at a confusingly high premium, is very telling. It goes a little like this: “Microsoft’s CEO buys Skype for $8 billion. Didn’t anyone tell him you can download it for free?”

Walter Frick over at the Harvard Business Review (HBR) has a similarly negative view. He suggests that if one goes by the normal criteria that determine whether an acquisition will be successful – that is, if the acquirer can be a provider of capital, provide better management oversight, transfer valuable skills and share capabilities with the acquiree – the “odds favour failure” in the case of Microsoft and LinkedIn.

While the criteria that HBR uses to forecast the potential success or failure of acquisitions may indeed apply to the vast majority of tech acquisitions, it also crucially misses out on the problems that Silicon Valley are looking to tackle today and the winding and often failure-ridden methods that they take to solve these problems.

Every new technological disruption is preceded by what tech analyst Benedict Evans refers to as an ‘idea maze’. For example, when the Web became popular, it was impossible to experience and use it and not realise that it would inevitably shape the future of technology; software and hardware included.

And yet, for the longest time it remained an ‘idea maze’ of possibilities: companies could do X or build Y to harness the Internet/Web, but it was all theoretical with very little clarity on what would actually work. Apple figured out how to complete one particular Internet-caused maze successfully; to make the jump from desktop computing to touchscreen-based smartphone computing. Other companies that didn’t do so well, despite spending millions of dollars, include Nokia and BlackBerry.

What are current technologies that are idea mazes? Smart watches, AI bots and virtual reality are good examples. There’s enough hype around these fields and yet no company has managed to find an overwhelming amount of success.

Most technology acquisitions, including the Microsoft-LinkedIn deal, are best looked at through the idea maze lens. Deals that make attempts at solving an idea maze are important regardless of whether the companies have other synergies that make for a good acquisition. How well do Microsoft’s past acquisitions and the most recent one match up when viewed through this framework?

Microsoft buys Nokia

The Venn diagram below appears like a cruel joke now — but it shows just how misguided the original Nokia acquisition was and, more importantly, why it would be foolish to compare the LinkedIn purchase with Microsoft buying out Nokia in 2013.
Microsoft Buys NokiaThe decision to buy out the Finnish smartphone maker was Microsoft’s way of catching up to the idea maze that had already been solved by Apple and perfected by Google with Android.

While the Windows Phone ambit – which was essentially aimed at spreading Windows software on all platforms – may have worked when a partnership between the two companies was announced in 2011 (though even at that time, Windows Phone had no strict competitive advantage over Android or iOS) by the time Microsoft acquired Nokia in 2013, the latter was on its deathbed.

At the time of the Nokia acquisition, there was much corporate-speak (HBR-like criteria and more) on why the deal would succeed. Reasons such as how Microsoft would take advantage of Nokia’s retail footprint and how Microsoft’s cash reserves could be used to reinvigorate innovation at Nokia. But ultimately, the location of the maze shifted as smartphone marketshare mattered less and focus shifted to what was built on the smartphone including apps such as Uber and wearable computing such as the Apple Watch.

Microsoft buys Skype

The diagram below is slightly less ridiculous. In 2011, Microsoft acquired Skype for a number of reasons including enterprise collaboration, fending off the competition and a fear of missing out on VOIP (which was the most popular idea maze at the time) and mobile telephony.

Microsoft Buys Skype

Shortly after the deal was announced, Wendy Grossman, in the Guardian, wrote “buying Skype redraws the map of today’s competitive landscape. Microsoft, Google, Facebook and Apple are all taking slightly different routes to be the consumer’s gateway to the digital world. Back in 1997, when portals were all the rage, every competitor had to have news, directory/search and free email. Today, to stay in the game, each apparently must have an entry in each of desktop, messaging/email, search, media mobile telephone and social networking.”

The benefit of hindsight allows us to analyze the Skype deal much better today. While many of the initially stated goals of the Skype acquisition worked out, by integrating its videoconferencing facilities into Office 365, Windows Phone, and Lync, it simply became less important, with the maze petering out. Business productivity tools such as Slack eventually radically changed inter-organization workflow while corporate voice communication was eventually dominated by Cisco WebEx and Jabber, the former of which had more efficiently used its enterprise relationships.  

Most importantly, as seen below, Skype was simply the wrong sort of corporate social network for Microsoft to acquire and definitely not the network upon which a new way of enterprise communication, sharing and connecting would be built.

Microsoft buys LinkedIn

The word ‘social graph’ is one that accompanies most analysis surrounding the Microsoft-LinkedIn deal, and for good reason. Skype is a peer-to-peer social network with very little identifiable information: its customer data (or social graph) struggles to explain linkages between different businesses or provide any meaningful enterprise data that Microsoft could use to further its enterprise software.

Microsoft Buys LinkedIn

LinkedIn, on the other hand, is likely the world’s most comprehensive database of the organisational structure of most Western companies. It has the potential to radically change the way businesses interact with one another and sell to one another.

Currently, the most popular form of company-to-company communication is either through e-mail or the telephone.  If Company A requires ‘X’, it makes a few calls and asks around before settling on Company B and reaching out to them through the phone or through e-mail. While some people may connect through Twitter’s DM service or other messaging services, it’s often after initial contact has been made.

However, Microsoft, with LinkedIn integration, has LinkedIn’s directory of real names, the ability to link that with Outlook/Office 365’s email and productivity tools and Skype to facilitate further interaction between people in different companies. The company has the potential to effectively control and facilitate interactions between the external and internal connections of business users; a claim that almost no other company can make. Say goodbye to calling a potential client or initiating business transaction through e-mail.

A coming together of two companies. Credit: Microsoft

A coming together of two companies. Credit: Microsoft

The slide above is one that Microsoft put out along with the acquisition announcement and talks about the synergies that both companies could tap into. To a certain extent, almost all acquisitions are a Rorschach blot: people look at them and project their backgrounds and expectations onto it. This Microsoft slide is a perfect example of this.

It speaks to two things: One, it signals the more traditional (and short-term) aspects of the buy-out which include the many ways that LinkedIn and Microsoft can be integrated with each other. Analysts and investors who are interested in this talk about how Microsoft will be able to tap into LinkedIn’s recruitment business and how the two companies (as many have written) could create a formidable customer relationship management business. But other smaller examples of integration include a more informed Cortana (Microsoft’s digital assistant) that will be able to eventually inform you of your “business relationships” and provide you with information that will help “cement a more personal relationship”, according to Computerworld.

Other possible integrations include a LinkedIn news feed (possibly powered by Bing) where you can catch up on your co-workers and industry friends from a social perspective. LinkedIn’s Lynda training software could also be sold along with Office 365 subscriptions; a synergy that on the surface appears to make a lot of sense.

Leaving aside the short-term though, and coming back to the idea maze, is the future of enterprise productivity and work in general. Corporate employees shifted away from working on a typewriter and having a secretary pass around the paper to working on a desktop and e-mailing word documents to one another. E-mailing your co-worker a Microsoft Word document also is starting to appear positively ancient, with Slack and other inter-corporate messaging systems proving to be a repository of Google Docs and Spreadsheet links.

Facebook’s stab at this space, ‘Facebook at Work’, is one example of the future of work and enterprise productivity – a self-contained ecosystem that comes with messaging, an interface for work tasks and workflow, a social component and a way to schedule meetings. But is that how the ‘future of work’ will be solved? It doesn’t appear to include other pieces of the puzzle such as Slack, Quip or the soon to be new method of business communication that is Microsoft & LinkedIn.

Microsoft’s acquisition of LinkedIn should be aimed at solving this idea maze of enterprise productivity and collaboration. It has the potential to do so and that alone almost immediately makes it a far better bet than the Nokia buyout, even if it ends up failing.

However, the fact that this acquisition has better potential doesn’t mean it’s likely that Microsoft will solve the digital productivity maze. LinkedIn as it is right now, and is certainly evidenced by the numerous jokes doing the rounds, is a terrible product for its users. The company makes the bulk of its revenue from recruiters and has consequently created a user experience that is riddled with spam, dark patterns and an overall confusing interface. If Microsoft wants to succeed with LinkedIn, it has to make people want to use the service.

Microsoft could help in creating a new LinkedIn, even though there are a number of people who believe the company doesn’t have the best track record in this regard. Creating a better product will be a crucial first step. After all, many companies have stumbled, thus failing to complete the maze, over far less.