22 October 2016
Most LinkedIn users post a lot of personal information on the website, which could be a data goldmine for Microsoft. Photo: Reuters
Most LinkedIn users post a lot of personal information on the website, which could be a data goldmine for Microsoft. Photo: Reuters

Why Microsoft wants LinkedIn so badly

Microsoft Corp. said it will buy LinkedIn Corp. for US$26.2 billion, a hefty premium of 50 percent over the firm’s market valuation.

That shows how badly Microsoft wants LinkedIn, which has a network of 433 million professionals.

Microsoft intends to make the most of that network, which it believes is more valuable than Facebook Inc.’s enormous pool of 1.6 billion users.

The majority of LinkedIn users are looking for jobs, and so they post their true identity on the website.

The company adopted a real-name policy at its establishment in 2002.

By contrast, real-name requirements have made very little progress on other social networking platforms like Facebook, Twitter, Instagram or China’s Weibo and WeChat.

There is a large number of users with fake names on these sites, or users who are unwilling to reveal their identity.

From the perspective of monetization, a real user is far more valuable than a skeptical user.

Also, most users post a lot of personal information, including education, work experience, professional skills and qualifications, as well as the user’s professional network, on LinkedIn.

This information is scarce on other social networking sites, like Facebook or Instagram.

Users of Facebook, Twitter, Instagram, Weibo or WeChat are quite diverse, ranging from teenagers to 80-year-olds.

By contrast, LinkedIn’s 433 million users are mainly professionals and executives.

The database of LinkedIn users is a gold mine, but it’s not easy to get value out of it.

Last year, the company achieved revenue of US$2.99 billion, only a sixth of Facebook’s.

LinkedIn still posted a loss of US$170 million last year, while Facebook made a huge profit of US$3.7 billion.

In fact, most LinkedIn users only come to the site when they are looking for jobs, and most discussions relate to professional and other serious topics.

But other social networking sites are far more engaging, and users have developed a strong dependence on them.

They will upload a post when they wake up, take photos at lunch, or share the most trivial things in their life with others.

That has created enormous traffic and crowds for these platforms.

Over 90 percent of Facebook’s revenue stems from advertising, but nearly 60 percent of LinkedIn’s revenue relies on fees charged from companies looking for recruitment solutions, and advertising contributes less than 20 percent of its revenue.

LinkedIn realized the limits of its business model three to four years ago, and it has introduced more news and discussion to the platform in an attempt to boost the appeal of the website and increase ad revenue.

The efforts have paid off, and users will notice that discussions in different groups on LinkedIn are more engaging.

Most of the topics are related to industry development, career paths, job opportunities or investments.

The Microsoft deals seems like a good one for LinkedIn, since it has struggled to strike a balance between making profit and maintaining its uniqueness.

Meanwhile, Microsoft has been trying to tap into social networking for years, and it has lagged far behind Google Inc. and Facebook in online advertising. That’s why LinkedIn came onto its radar.

Also, Microsoft was sitting on a huge cash pile of over US$105 billion in March.

Nevertheless, the acquisition raises the question of how Microsoft will deal with LinkedIn’s user profiles in the future, the most valuable asset it is seeking from the deal.

This article appeared in the Hong Kong Economic Journal on June 16.

Translation by Julie Zhu

[Chinese version 中文版]

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Hong Kong Economic Journal columnist

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