Like many a LinkedIn user, Peter Cohan isn’t happy with what he sees these days from the social networking site. Over the last year, he’s fought a losing battle against browser loading problems and awkward design changes he didn’t ask for — and that he (like the half-billion others in the LinkedIn nation) weren’t asked about first.
Cohan also believes his profile page — through no posting of a cringe-worthy head shot, mind you — “looks funny.”
But here’s where it’s no laughing matter, neither to LinkedIn’s user base nor its former investors. On the one hand, the once-foundering company found a savior in June of last year when Microsoft Corp. (ticker: MSFT) purchased it for $26.2 billion.
Yet since that sale, LinkedIn not only looks a bit odd — it’s an odd duck in the Microsoft portfolio.
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Arguably LinkedIn is exerting a drag on Microsoft as the software behemoth tries to crack the code that will unlock a revenue rush. Enter Cohan, lecturer of strategy at Babson College in Wellesley, Massachusetts, author of “Disciplined Growth Strategies” — and a vocal critic of the Microsoft-LinkedIn deal.
After both parties announced the acquisition, Cohan did not mince words last year when he told U.S. News, “There is no reason to believe that Microsoft has the strategic skills needed to revive LinkedIn’s growth.”
Has he changed his mind since? Not exactly.
“To be fair, it is too early to see whether LinkedIn will add enough cash flow to Microsoft to more than offset the massive price it paid,” Cohan says. “But I don’t think LinkedIn will become a meaningful source of revenue to investors.”
At least not to justify the hefty price tag, which breaks down to about $54 per LinkedIn user. To the extent that the deal represents a bust may never be fully known, now that LinkedIn is a cog in the Microsoft machine.
At the very least, LinkedIn won. Big. It now boasts a cash pipeline that’s not drying up any time soon. In the first quarter of 2017, Microsoft reported that LinkedIn contributed $975 million in revenue against a $386 million operating loss. Compare that to the same quarter in 2016, when an independent LinkedIn reported $861 million in revenue and a $46 million net loss.
What may be of more value in the long run is Microsoft’s ability to leverage LinkedIn’s user network as a revenue multiplier.
“Microsoft faces the challenge of how to let LinkedIn be run as independently as possible, yet reap the synergistic benefit for the parent company’s long-term growth and profit,” says K.C. Ma, director of the George Investments Institute at Stetson University in DeLand, Florida.
The key to striking the balance could lie in LinkedIn CEO Jeff Weiner, an energetic presence known for marching to the beat of his own high-tech drummer. In a Silicon Valley landscape littered with 80-hour-a-week workaholics, Weiner tries to leave the office at a reasonable hour every day to spend time with his family — a subject he’s written about for LinkedIn’s audience.
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When Microsoft inked the deal, Weiner agreed to stay on for three years. But should he choose to move on, the House Bill Gates Built could face a public relations glitch. That’s a significant issue as Microsoft continues to wash the memory of bumbling former CEO Steve Ballmer from investors’ minds.
A LinkedIn without Weiner could also drain the morale of LinkedIn employees who might fear what Microsoft would have in store next. To that end, “LinkedIn corporate culture, brand and identity should remain in more than just a superficial way, such as keeping their own campus and badges,” Ma says.
Unfortunately, the track record doesn’t inspire any warm and fuzzies. “There are countless examples of Microsoft acquisitions where the company de facto collapsed right after the founders left,” Ma says.
Yet even Microsoft’s staunchest critics would have to give Ballmer, of all people, props for the company’s Skype acquisition in 2011. The $8.5 billion deal could serve as a template for LinkedIn success.
Following the purchase, Skype was integrated with Microsoft Office apps — an ultimately shrewd move. Notes Ma: “Microsoft has nearly doubled Skype’s users and moved it into the more lucrative business market.”
Meanwhile, what Microsoft hasn’t reaped in profits it has certainly gained in presence.
“The LinkedIn acquisition put Microsoft on the map within the social networking industry,” says Robb Hecht, adjunct marketing professor at Baruch College in New York City. “Previously, Microsoft did not have a foothold here. The company has many plans in the works for LinkedIn, including a new interface that makes it less sterile, more welcoming and — gasp — more like Facebook ( FB).”
That’s a comparison Microsoft might well embrace. While its stock is up more than a third from a year ago (compared to Facebook’s 25 percent jump), it doesn’t take a social media genius to guess which company the public perceives as cooler. Investors, of course, could care less so long as a deal makes money.
But how long could it take for LinkedIn to really bolster Microsoft’s bottom line?
“It will always take time for any marriage to work,” Ma says: Give it “three to five years.”
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As for what resources it will take, Cohan offers this parting shot: “It would certainly help Microsoft if it was able to convert all the spam it sends to LinkedIn users into increased revenue.”
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Microsoft and LinkedIn: Is It a Match? originally appeared on usnews.com
