Trumpeting his company's $26.2 billion acquisition of LinkedIn Monday morning, Microsoft CEO Satya Nadella offered no shortage of rationales for the deal. LinkedIn's vast trove of data showing who in the corporate world is connected to whom will improve Microsoft's customer-relationship management products and add new "social selling" capabilities. "Tasteful integrations" like a news feed inside Word will make those offerings stickier for users. Lynda, the online education business LinkedInbought last year for $1.5 billion, can be a platform for training people in use of Microsoft software. Bing will get better at people search. And so on.
One argument Nadella didn't offer is the one that might have been his first one five years ago: that social networking is a wonderful growth business on its own merits, one every company of Microsoft's size needs a footprint in to stay competitive.
Indeed, it would be hard to make that argument based on the fortunes of LinkedIn, which has struggled with growth in recent years. It increased its number of monthly active users by only 9 percent in 2015, and less than 25 percent of its total users are active monthly. LinkedIn lost $166 million last year.
Extrapolating LinkedIn's difficulties into a statement about the social networking business as a whole is tricky because LinkedIn has always been a weird creature. Compared with other social media companies, it offers users a much more obvious core value proposition: Put your resume here and maybe someone will hire you. Contrast that with Twitter, which has always wrestled with the "What am I supposed to do here?" question.
But LinkedIn's greatest strength was also its greatest weakness. When you know exactly what you need something for, you also know what you don't need it for. Even in a volatile job market, updating your resume typically isn't the kind of thing you need to do more than a couple times a year. Hence those hundreds of millions of inactive members.
Monetizing them more fully required engaging them more often. Seeking to do this, LinkedIn has tried everything from a Facebook-style news feed to professional content from "Influencers" like Richard Branson to spammy emails teasing "Who's Looking at Your Profile." Some of these strategies worked better than others, but none worked well enough to keep LinkedIn from getting acquired by a company that would clearly have preferred to buy Salesforce.
But if LinkedIn is an outlier, it also might be a bellwether. News of its impending sale drove up shares of Twitter on the theory that it, too, might find a buyer that thinks it can squeeze more value out of it than shareholders are getting now. For Twitter, too, the problem has long been sluggish growth in active users. Meanwhile, even mighty Facebook has a challenge of its own: Its users have suddenly become allergic to sharing their personal content with each other, and there are other signs it's approaching a saturation point.
More than a decade into the social media era, it's obvious there's a great deal of value in digital networks that map some kind of relationship between people -- social or professional connections, shared tastes or interests, whatever. What's not obvious or clear is how well those networks hang onto their value over the long term, or what upper limits might constrain them. Users who were once purely curious and unwary about these new toys have had time to grow bored and jaded. The most ambitious predictions for social -- for instance, the idea that it will become a primary venue for not just advertising but actual commerce -- are starting to look overzealous. Social networks aren't going away, but the heyday of social media companies as standalone marquee enterprises may already be past.
Source: JEFF BERCOVICI
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