Microsoft has bought a social network for the price of 40-odd super yachts. The $26.2bn purchase of LinkedIn has raised eyebrows across the globe, and is almost as impressive for the fact that such a large deal was kept under wraps so successfully as it is for the enormous sum.
But why has Microsoft done this, besides the fact that it can? Can the company ever hope to see a return on such a huge investment?
Not on the face of it. LinkedIn, a social network for professionals, is actually profitable only with the aid of some accounting shenanigans. Exclude the value of employees' stock-based compensation and it generated $99m in profit in the past quarter. Don't exclude that figure, however, and that profit slumps to a $46m loss.
But, of course, Microsoft didn't buy LinkedIn simply to leave it in a corner and hope that it one day adds something to the bottom line. There are three significant benefits Microsoft is targeting here.
LinkedIn comes with a large volume of incredibly useful data on its 433 million users. Obviously you get the basics - names, addresses, career histories - but crucially you get access to the address books of all of those users.
A survey from storage firm Western Digital in 2015 found that on average most people value their personal data at around £3,200. On that basis, acquiring it via acquisition in this way is a bargain.
Data aggregators such as Acxiom have made fortunes by compiling vast databases of the majority of adults in the US and UK, and lots of other territories. Now Microsoft has bought its own database, and one which comes with a social network as an added extra.
2. Social graph
This is basically an extension of the first point, but represents more than just individuals' personal data. It's partly about connections between people, and their address books, and about their connections and relationships to companies, groups and products.
Understanding who people know and what they like is of huge value if you want to sell them something, like an Office 365 subscription, for instance.
And those connections between people are valuable too. Two years ago Facebook spent $18.4bn on WhatsApp, which equates to $42 per address book. Microsoft's latest acquisition is just over $60 per contact list, but it's got a targeted list of professionals - exactly the group CEO Satya Nadella wants to focus on.
Microsoft used to be about selling packaged software. Now it's about online services. And despite previous CEO Steve Ballmer's best efforts, Microsoft has roundly missed the mobile revolution and isn't going to overtake Apple and Google in the consumer space any time soon.
Nadella, however, is refocusing on businesses, where his firm continues to find success. And this acquisition is an expression of that strategy. He explained it best in an internal memo sent round at the time of the announcement.
"This combination [of Microsoft and LinkedIn] will make it possible for new experiences such as a LinkedIn newsfeed that serves articles based on the project you are working on and Office suggesting an expert to connect with via LinkedIn to help with a task you're trying to complete," he wrote.
"As these experiences get more intelligent and delightful, the LinkedIn and Office 365 engagement will grow. And in turn, new opportunities will be created for monetisation through individual and organisation subscriptions and targeted advertising.
"The opportunity for Office 365 and Dynamics is just as profound. Over the past decade we have moved Office from a set of productivity tools to a cloud service across any platform and device.
"This deal is the next step forward for Office 365 and Dynamics as they connect to the world's largest and most valuable professional network. In essence, we can reinvent ways to make professionals more productive while at the same time reinventing selling, marketing and talent management business processes.
"I can't wait to see what our teams dream up when we can begin working together once the deal closes, which we expect will happen this calendar year."
So, ultimately this is a play to increase sales of Microsoft's productivity software, a way of enhancing its Dynamics CRM tool, and a straight-up database purchase with a social network attached.
In the longer term we should expect to see LinkedIn profiles as the central way in which we're recognised by, and interact with, Microsoft products. The intelligence gleaned from that identity will drive news feeds, connections and job recommendations, with email and calendar functions fulfilled by a future version of LinkedIn.
So the answer to the question of whether Microsoft will see a return on its investment is yes, but over the course of several years and via many different channels.
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