Why Microsoft bought LinkedIn for $26.2 billion

From the outside, if you look at it Microsoft and LinkedIn don't seem like a perfect fit.

Microsoft is this big technology giant - a company known for inventing new technologies that power the fabric of our lives, while LinkedIn is the quintessential HR tool - a professional social network and tool for connecting and sharing ideas with people in your professional circle.

But this isn't the Microsoft that bought Nokia a couple of years ago. This isn't the Microsoft that refused to make Office apps for the iPad.

This is the new Microsoft. It is well and truly Satya Nadella’s Microsoft  - the company he envisions will "help people do more". So why does it make sense? Well, let me explain.

The biggest tell-tale sign that Microsoft and LinkedIn are a great fit together is that Yammer hasn't really worked out well for Microsoft. Microsoft bought Yammer a couple of years ago for $1.2 billion as a social network for the enterprise, which it baked in Office 365, but it hasn't found many takers.

LinkedIn, on the flip side, has 433 million users and is well and truly the largest social network geared towards professionals.

Microsoft has harboured social network dreams for a while now. It was one of the early investors in Facebook, but now Facebook is a juggernaut on its own. Facebook is also a juggernaut which is doubling down on a version of its social fabric for people at work.

If Microsoft wants a jump start on this, there is nothing better than LinkedIn.

"Together we can accelerate the growth of LinkedIn, as well as Microsoft Office 365 and Dynamics as we seek to empower every person and organisation on the planet,” said Nadella at the announcement, which clearly indicates that he intends to fuse LinkedIn with Office 365 and its CRM business of Dynamics.

Remember, there is also the Microsoft Azure cloud service and when you combine the four, you’re looking at possibly the most compressive and formidable package of services that any enterprise-focussed tech giant could conjure. Again, makes sense.

The Microsoft of today is not the Windows and Office maker we remember. It has more or less failed in the smartphone space and enterprise is the area where it is going great guns. How does it push the envelope further?

Well, LinkedIn could be the answer. Microsoft is even letting LinkedIn run as separate unit, where its CEO Jeff Weiner will report to Microsoft CEO Satya Nadella.

While adoption for Office 365 is up and Windows 10 is also going great guns, the new software as a service business model has impacted Microsoft’s fat profits, which once made it the richest company on the planet.

LinkedIn is not only popular, but also has a premium tier which is used by many professionals and could be another revenue source for Microsoft.

Now $26.2 billion would sound like a steep cost, but the fact is that Microsoft would have lost presence on social networks for work if it hadn’t bought LinkedIn.

It would have taken it a long time to create a product that is as good as LinkedIn and it would have struggled to get users because of the inherent "chicken and egg" problem.

It would have opened a door for Facebook and perhaps even Google, which has had its own share of social woes. Remember, this isn’t Microsoft purchasing an ailing company like Nokia. LinkedIn is in a healthy state.