Why is Microsoft buying LinkedIn for $26.2bn?

Microsoft just surprised the world with its LinkedIn acquisition. Valued at $26.2 billion, it's a huge price to pay for a social network, and it tops the charts as Microsoft's biggest-ever acquisition. As Microsoft CEO Satya Nadella's first major acquisition, the success or failure of LinkedIn will define him as the leader of Microsoft's increasingly service-driven future. While many are surprised at the cash figure, the question on everyone's lips is, why does Microsoft want LinkedIn?

Nadella's internal memo does a good job of providing a basic outline to partially answer that question, and more. Nadella points out that LinkedIn is "how people find jobs, build skills, sell, market and get work done." It's a key tool in the professional work space, with 433 million members and more than 2 million paid subscribers. Microsoft itself has more than 1.2 billion Office users, but it has no social graph and has to rely on Facebook, LinkedIn, and others to provide that key connection.

LinkedIn provides Microsoft with immediate access to more than 433 million members and a solid social graph that, thanks to its professional nature, is matched closely with the software and services Microsoft provides. In the same way that most kids play Minecraft, it's reasonable to assume most adults in the US use LinkedIn for finding jobs, connecting with colleagues, or just general work-related networking.

"This combination will make it possible for new experiences such as a LinkedIn newsfeed that serves up 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," says Nadella. 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 monetization through individual and organization subscriptions and targeted advertising."

MICROSOFT WANTS LINKEDIN PROFILES TO BECOME A CENTRAL IDENTITY IN THE WORKPLACE

Nadella's example in his internal memo is only a small part of how Microsoft envisions its future with LinkedIn. LinkedIn will be the central professional profile that will be surfaced in apps like Outlook, Skype, Office, and even Windows itself. Microsoft wants to turn LinkedIn profiles into a central identity, and the newsfeed into an intelligent stream of data that will connect professionals to each other through shared meeting, notes, and email activity. It's a future of using a strong social graph and linking it directly into machine learning and understanding, an area Microsoft has showed great interest in recently.

Microsoft even provides an example of Cortana connecting to LinkedIn to provide context on people you might be meeting professionally. It's something the company has been working with LinkedIn to integrate recently, but it's clear Microsoft sees LinkedIn as a big part of making Cortana more intelligent in the workplace. LinkedIn still has a reputation for being a spam machine, and recent password dumps have dented its security credentials. Microsoft will need to clear up both of these problems if it wants LinkedIn to be taken even more seriously by businesses.

A SOCIAL GRAPH ALLOWS MICROSOFT TO KEEP FACEBOOK AND GOOGLE OUT OF THE WORKPLACE

These product examples and features all feed into a social network that's designed to combat rivals in the workplace. Google and Facebook have both shown interest in expanding into the social workplace, but LinkedIn has the advantage of being seen as the professional network. Microsoft might not be discussing rivals just yet, but this LinkedIn acquisition is a big bet on the future of machine learning and the ability to secure its control of enterprise software and services.

Microsoft now has a huge social network to fend off advances from Google's suite of productivity services, but it still needs to convince businesses not to use Facebook at Work or Google Apps instead. It also faces the tough job of integrating LinkedIn into Microsoft's software, services, and management. Microsoft's previous acquisitions have been mixed affairs. The software maker acquired Yammer nearly four years ago, and bought Skype for $8.5 billion back in 2011. Both of those acquisitions have been integrated more closely into Microsoft's Office business, but they haven't been particularly rewarding.

LinkedIn is a different beast, and many outsiders will be watching patiently to see exactly how well Microsoft integrates the social network into everything the company provides for businesses. Microsoft’s enterprise-centric intentions are clear, and it has gone on the offense today to prove it.