Microsoft’s $26B Acquisition of LinkedIn Makes More Sense Than You Might Think

Among social networks, LinkedIn has always been something of outlier.

It’s never had the reach of Facebook, the influence of Twitter or the cachet of Snapchat.  Of course, it predates all of those platforms by years.

The last holdout from the first wave of social networks, LinkedIn’s business focus has always set it apart.

It makes sense, business networking has always been formal and systematic. LinkedIn wasn’t something new, like MySpace (which was founded eight months later). Rather, LinkedIn was the new rolodex.

That’s why despite its flaws—a poor user interface, its propensity to send spam emails and the fact that the average user spends a mere 17 minutes on the site every month—it’s been profitable since 2006.

But this only explains a small piece of why Microsoft announced on Monday that it plans to buy LinkedIn for $26 billion. The all-cash acquisition will the third large tech deal ever and the largest in Microsoft’s history.

For Microsoft, the purchase is about making Office 365—its cloud-based subscription office suite—smarter.

“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,” Satya Nadella, Microsoft’s CEO, wrote in an email to employees. “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.”

By adding more features, it’s clear that Microsoft also sees an opportunity to grow commercial adoption of Office 365.

While there are over 1.2 billion Microsoft Office users worldwide, Office 365 only has 70 million commercial mostly active users. LinkedIn, on the other hand, has over 433 million members (of whom over two million are paid subscribers—the key to its profitability).

For LinkedIn, the deal seems to have come at the right time. Microsoft was originally was looking to form a partnership with LinkedIn—not acquire it—according to the Wall Street Journal.

But, a meeting in February to discuss the proposed partnership, held shortly after LinkedIn’s stock dipped on news that growth was slowing, “rapidly evolved into something more serious,” according to the paper.

For Microsoft, accelerating LinkedIn’s growth will be a major focus and both companies say they see opportunities.

Part of that appears to be a plan to make LinkedIn accounts the single unified profile for all Microsoft’s business products, things like Word, Windows, Skype, Excel and SharePoint.

Microsoft also plans to use data from LInkedIn to make Cortana, its digital assistant, smarter and more predictive.

And here might be the biggest reasons for the acquisition. Google is rapidly moving into the enterprise market.

On Monday, it announced a new workplace-focused search tool, called Springboard. That’s in addition to pre-existing integrations between Gmail, Docs and Google Now, its digital assistant. As well, Google already has a single, unified, login and profile across all of its products.

With the acquisition of LinkedIn, Microsoft appears to be getting ready to take Google head-on.