Big Opportunities and Critical Warning Signs from Microsoft’s Purchase of LinkedIn

Big Data and Analytics, Digital Strategy

Big Opportunities and Critical Warning Signs from Microsoft’s Purchase of LinkedIn

14 Jun , 2016  

The opportunities ahead for Microsoft and LinkedIn are many. There are also some important lessons for the tech industry. This, the largest of Microsoft’s acquisitions, is really about buying data and data assets. Here are my thoughts on opportunities going forward and lessons leaned from the LinkedIn sale:

  1. Microsoft can make LinkedIn the Greatest Expert (or Gig) Site Ever: Just like Airbnb and Uber have brought the sharing economy to housing and travel, imagine LinkedIn being to go to place for anything professional or for any expert. Need a chef for a dinner? Need an architect? Need an App built? Need your PowerPoint deck to look amazing by tomorrow – LinkedIn via Microsoft can provide that – all in one place! It can and should explore becoming the largest job site, and not just full-time jobs, but gigs and expert assignments. Microsoft, welcome to the sharing economy! Hire an expert in a click or two. LinkedIn can be the best job placement service, ever.
  2. Widen the Focus on Corporate Solutions: Mostly, LinkedIn has focused on recruiting and helped (almost only) big firms with that in big ways. However, the task of managing, mentoring, and advancing employees is never ending and is an opportunity for both big and small firms. LinkedIn can provide solutions to help firms (big and small) provide development, certification, training, and career trajectory guidance. It can also help very large firms manage, search, and identify their own experts and special sets in the enterprise. I remember just trying to find our own technical experts when I worked at Capital One was hard. Nobody posted their skill sets in the HR database. Mapping the enterprise of experts at a firm is a great start.
  3. Make LinkedIn Valuable to College (and High School) Students: LinkedIn becomes valuable to professionals looking for their first job, but what about before that? With data and insights on the importance of college majors, jobs, and training, LinkedIn has a lot of value to younger people (who use the site less). Making LinkedIn a got to place for younger people will give it an edge over Facebook, too. It can become the place for college advice, major advice, course selection, job selection, and mentorship. It can be a powerful entree for Microsoft to trend setters and future tech users. Facebook already has seen a retreat from Gen Z. Microsoft can place this in a powerful way to be first in mind for college students.
  4. Develop Premium Solutions that Generate Revenue (for Users): In my book, From Big Data to Big Profits: Success with Data and Analytics, I write about how LinkedIn has successfully created revenue streams for itself. That is great. A missed opportunity is helping its user base earn more (and getting paid for that). It gets near that by placing job ideas in front of people. However, if you are a sales person, LinkedIn should provide more and better hot leads to people that need your product. That is what Zillow helped do for realtors and it has made Zillow the leader by far in the industry. In short, it can be a better match-maker. Maybe it is time to dive into the algorithms used to for purpose.
  5. Create More Data Products: LinkedIn’s data is impressive. For instance, it can help a firm identify the source of a firms best (most productive, longest tenured, etc.) employees. That is worth a fee. It can also tell a job prospect where best opportunities (pay, advancement, lifestyle, goals) can be found. Tom Davenport and I wrote about LinkedIn and its opportunity to leverage data products and form a LinkedInstitute to enable innovation in the use of its network. There is a lot of white space ahead. For instance, have a pulse on the labor market, hiring trends could allow LinkedIn to identify growing firms, shrinking firms, locations that will experience real estate upticks, and maybe even say something a firm’s management or workforce quality. It seems these and many more can bring LinkedIn and Microsoft new partners.
  6. Microsoft Needs a Data War Chest: Consider the mega digital ecosystems for a moment. Apple has a war chest of data on mobile, music, and more through its apps; Google has an even bigger war chest of data on search and usage, Amazon has a ware chest of data on purchases, Facebook has data on everyone (nearly). Microsoft needs data to keep up and to be important to users in the future. The data will allow it to form sticky relationships with consumers and innovate in ways not possible before. On that front, I think, LinkedIn data is a powerful opportunity for Microsoft. It will be Microsoft’s Big Data. It will allow Microsoft to have a major advantage in its digital ecosystem.

The acquisition of LinkedIn offers lessons and warning signs to tech firms especially.

  1. It is Hard to Grow a Premium Product: The talented leadership team at LinkedIn must have been looking over a chasm that they could not cross. The stock price was above $200 for much of 2015 and even hit $270. Getting back to that must have looked impossible, if management sold out below the all-time high. As the LinkedIn team experimented, it found that getting growth from advertisements and growing revenue from more recruiting was proving hard. Firms were also figuring out how to get by with less LinkedIn recruiting licenses.
  2. Operations at LinkedIn were Not Scaling Well. I enjoy LinkedIn’s ability to connect people. However, the operations are clunky and fail from time to time. To me that is a perfect place for a cloud and mega Microsoft enterprise solution. When LinkedIn wants to tackle emerging markets and get bigger, the operational solution will be even more critical.
  3. Scale is Really Hard to Achieve: LinkedIn did an amazing job in growing to 433 million users in just a few years. It is a fourth of the number of Facebook users, which is impressively over 1.6 billion. Also, could LinkedIn make advertisements work? It was proving hard. The platform did not lend itself to broad scale advertisement like Facebook. It nicely moved into education with, but its appeal has not scaled outside of the professional ranks. And for many professions, like medicine, law, politics, and service jobs, LinkedIn has a limited share.
  4. Executive Compensation via Options has a Limit: With many executives earning options at LinkedIn, the implied growth and future promises were getting more and more expensive. I hope the good people at LinkedIn are happy, but I suspect some stock options are not paying out, as hoped. That is part of the tech ride. Also, a 50% premium does not strike me as crazy money. The LinkedIn stock price was above that in just February of this year. All signs that that tech mini-bubble might be bursting.

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About Russell Walker, Ph.D.

Professor Russell Walker helps companies develop strategies to manage risk and harness value through analytics and Big Data. He is Clinical Associate Professor of Managerial Economics and Decision Sciences at the Kellogg School of Management of Northwestern University. He has worked with many professional sports teams and leading marketing organizations through the Analytical Consulting Lab, an experiential class that he founded and leads at Kellogg.

books-together-from-amazonHis most recent and award-winning book, From Big Data to Big Profits: Success with Data and Analytics is published by Oxford University Press (2015), which explores how firms can best monetize Big Data through digital strategies. He is the author of the text Winning with Risk Management (World Scientific Publishing, 2013), which examines the principles and practice of risk management through business case studies.

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Russell Walker helps companies develop strategies to manage risk and harness value through analytics and big data. He has done novel research in data monetization and digital disruption and advises leading firms on these topics. As Director of Experiential Learning in Analytics and Associate Teaching Professor of Marketing and International Business at the Foster School of Business, at the University of Washington, Dr. Walker is an academic thought-leader on analytics. Russell Walker has developed and taught leading executive programs on Big Data and Analytics, Strategic Data-Driven Marketing, Enterprise Risk, Operational Risk, and Global Leadership. Previous to moving to Seattle and the Foster School, Dr. Walker was Clinical Professor at the Kellogg School of Management of Northwestern University, where he founded and taught many popular courses in analytics and risk management. His is the author of the book From Big Data to Big Profits: Success with Data and Analytics (Oxford University Press, 2015) which examines data monetization strategies and the development of data-centric business models in the new digital economy. He is also the author of the award-winning text Winning with Risk Management (World Scientific Publishing, 2013), which examines the principles and practice of risk management as a competitive advantage. Dr. Walker consults with firms on the topics of Big Data and Analytics, Data Monetization, Risk Management, and Business Strategy. Russell Walker can be reached at: @RussWalker1776

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