Just when you thought the tech boom was fading, Microsoft announced today it will acquire LinkedIn for $26.2 billion…
This is Microsoft’s most expensive buyout of all time. It dwarfs the company’s $8 billion Skype purchase. And even beats Facebook’s $19 billion WhatsApp buyout.
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A little tech trivia: Anyone know how much Microsoft bought Hotmail.com for back in the late-90s?
A mere $500 million.
Satya Nadella, Microsoft’s transformative CEO, told Bloomberg purchasing LinkedIn is about “bringing together the professional cloud, which is at the core of Microsoft, and the professional network. The dream we’ve always had is how can we connect these two worlds so that our mutual users, who are the professionals of the world, can get their work done more seamlessly. That’s the vision.”
You may recall that Microsoft was rumoured to be in talks with Salesforce (valued today at approximately $55 billion) last year regarding potentially buying them out. However, unlike LinkedIn, Saleforce burns through cash, and only posted a thin profit last year (relative to its market cap). LinkedIn, on the other hand, has been able to post higher gross profit margins than Facebook and Google in the past. The Fool.com reported in 2015 that LinkedIn posted a gross margin of 87% in 2014. Furthermore, In March of 2015, LinkedIn posted a record quarterly revenue for 21 straight quarters.
If you’re a tech entrepreneur, or building a service platform of any sort, there are five key takeaways from Microsoft’s blockbuster buyout of LinkedIn. When building your platform, keep these front and centre if valuation is important 🙂
1. Both sides of LinkedIn’s user base are willing to pay for a premium version. Simply put, job seekers will pay to get their name out there and likewise recruiters.
2. Internationally adopted product: We live in a global economy. And LinkedIn is one of the only Western-created social media platforms that has gained traction in China, the world’s second largest economy. Why? Because it is valuable for any economy! It makes economies more efficient.
3. Productivity tool: LinkedIn allows its growing user base to be more productive. It’s a massive time saver and gives tremendously more exposure than its competitors.
4. Encourages users, without any additional effort on their part, to keep pursuing more. So long as you have a LinkedIn profile, you could be seen by a bigger, better employer or partner than you’re currently with. In the modern economy where less than 10% of the working population stays with one employer for their entire career, this is important. LinkedIn enables the pursuit of greater, long-term career goals.
5. Impressive, high gross profit margins. Two years ago tech companies didn’t give a shit about profit. They just wanted to grow their user base – rapidly. Now, with the economy and market getting frothy, the bottom line once again matters… as it should!
Today’s Microsoft buyout offer for LinkedIn was obviously monetarily huge – the biggest of its kind ever, in fact. However, more importantly for us entrepreneurs and investors, it serves as a good reminder of what it takes to build a lasting platform that can justify an enormous valuation. It also reminds us that there is no such thing as an overnight success, contrary to what the media will have you believe about tech startups. LinkedIn was started by Reid Hoffman way back in 2002 – right after the dotcom bubble when no one would touch a tech startup with a ten-foot pole. Perseverance pays off.
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