Bloomberg reported in June that Salesforce (CRM, Financial) was fighting with Microsoft (MSFT, Financial) to buy LinkedIn (LNKD, Financial). Microsoft ultimately won that fight for $26.2 billion in cash in what was the biggest deal in the company’s history. The interesting point to note here is: why would Salesforce, with a market cap of near $55 billion, want to buy something valued at almost half of what it was worth?
For both Microsoft and Salesforce, the biggest attraction was LinkedIn’s treasure trove of data rather than how much money Linkedin could earn in the future. With 433 million users worldwide and 105 million unique visitors per month, LinkedIn is undoubtedly the largest professional network in the world. Microsoft has its own cloud business that serves business users around the world and offers a laundry list of products geared for productivity in a business environment. Salesforce, on the other hand, is a CRM (customer relationship management) software solutions provider that targets business users as well.
Linkedin's platform makes a lot more sense for Microsoft to have in its arsenal. It will allow the company to target the right business users to sell its office productivity applications and as-a-services cloud solutions. It can also use the crowd-sourced data and feedback from LinkedIn users to update and customize products and maybe develop new ones. All its solutions are targeting enterprises and businesses around the world so it makes a lot of sense.
But why would Salesforce want LinkedIn?
Recode says that Salesforce was interested in Linkedin’s recruiting business, a segment that brought most of Linkedin’s revenues. But I find it hard to believe that they would be willing to spend $26 billion to acquire a company that only made $2.99 billion last year and posted a loss of $166 million. There’s got to be a bigger reason than that.
Salesforce is still the king of the CRM jungle, giving early leaders of the segment Oracle (ORCL, Financial) and SAP (SAP, Financial) a run for their money. It has been building, buying and adding products to its lineup so that clients can manage the complete sales lifecycle from finding the customer to closing the deal to managing the client-vendor relationship and staying on top of it at all times.
Now, throw in a recruiting business into this mix, and it will signal a clear break from the “we are here to help you sell better” philosophy to more of a “we want to help you every step of the way” philosophy.
The real reason behind the LinkedIn bid
Salesforce is getting serious about diversifying more aggressively into the human resource management space. Its HRM offerings would have been given a tremendous boost with LinkedIn. Salesforce’s HR offerings have been in the form of apps that help companies engage their employees, but their core HRM tools have yet to make their way to their products page, as you can see below.
In a single move to take over LinkedIn, Salesforce would have been in a position to start offering companies an entire turnkey solution that would have allowed them to manage the complete employee lifecycle right from the day they joined and until the day they left. All of this would have been delivered on the cloud using an as-a-service model.
Although the acquisition went in favor of Microsoft, Salesforce is not going to let that stop it. A turnkey solution with HRM and CRM capabilities would effectively cement its No. 1 position in the human resource management space, where it contends with SaaS heavies such as Oracle. It’s clear this is what Salesforce is after so it should be interesting to watch how it negotiates this bend in the road now that the biggest professional network in the world is out of its reach.
Disclosure: I have no positions in any stocks mentioned and no plans to initiate any positions within the next 72 hours.
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