Microsoft announcing its $26.2 billion acquisition of LinkedIn on Monday made for great headlines. Unfortunately, those headlines were mostly focused on the wrong things.
Sure, these are two of the biggest names in technology coming together for the biggest acquisition in Microsoft’s long and storied history. However, most of the conversation focused on integration of Microsoft’s professional technology, such as Outlook and Office, with LinkedIn’s giant professional network. Although that’s a significant opportunity, it doesn’t justify the premium that Microsoft paid. What does justify the premium is Microsoft gaining access to a new and essential market: Human Capital Management (HCM).
We encourage you to read the excellent ZDNet article outlining Microsoft’s HCM opportunity. To summarize it in brief, there’s $315 billion of total addressable market that is inaccessible without doing something different. In HCM, Microsoft opens the door to $131 billion in HCM total addressable market, according to The Starr Conspiracy’s Enterprise HCM Brandscape. That certainly qualifies as something different.
- Microsoft is positioned to compete in HCM 2.0 and 3.0. As The Wall Street Journal points out, about two-thirds of LinkedIn’s revenue comes from its talent solutions division, which generated $558 million in revenue in the first quarter. In effect, Microsoft has become one of the world’s largest HCM companies. It’s also now at the forefront of building next-generation HCM 2.0 solutions like the employee engagement platform. Microsoft is in the unique position to build out HCM 3.0 solutions that combine talent and people solutions with the applications where work actually gets done — think ERP + CRM + Office/Outlook + SharePoint + Skype + Yammer + LinkedIn + Lynda.com. And with LinkedIn, Microsoft gets access to the best “system of record” in the world, which is the one where people take responsibility for ensuring the quality of their own data.
- Microsoft got a bargain if it can make it work. Since when is $26.2 billion a bargain? When it brings $2 billion-plus in annual revenue and opens the door to over $131 billion in new market opportunity. That’s when. However, there’s one huge caveat: the integration challenge. It’s a big obstacle, and while Microsoft typically moves slowly, HCM is a high-velocity market right now. Will LinkedIn CEO Jeff Weiner’s assertion that LinkedIn will be an independent entity within Microsoft help or hinder its grand ambitions? Microsoft’s track record with acquisitions hasn’t been a good one, but it can write a new chapter if it makes this work.
- Watch for the inevitable shock waves. One thing that has become very clear to us over the past year is the entry of nontraditional technology players coming into the HCM space. This trend will accelerate over the next year. Furthermore, there’s now more pressure than ever on Salesforce, Oracle, and even Apple to make more aggressive moves into the HCM space. And it plays out throughout the HCM ecosystem. Case in point: systems integrators. Companies that provide support and integration for both talent technologies and Microsoft (such as Tribridge) have a significant opportunity as well. This won’t be a ripple effect — it will be shock waves.
This deal really puts an exclamation point on how quickly the HCM landscape has transformed and how the terms of engagement have shifted. In the past, we would have assumed that for Microsoft to make a significant play in HCM, it would need some sort of system of record to make a compelling play for HR spend.
Now? Maybe it will eventually acquire a true core HR system, but it can make pretty significant headway into HR without it. Should the giant enterprise software behemoths be worried about that? Probably not today, but we’d suggest probably a lot sooner than anyone thinks, too.
