Is Microsoft’s LinkedIn deal as much about SaaS as ad money?

Little over a fortnight after Microsoft paid $26bn for the social network, LinkedIn has introduced a mechanism for advertisers to buy programmatic ads that will display across the site.

In an effort to draw fresh revenue from LinkedIn’s 433m users, the new system will display banners across the LinkedIn desktop and supplement the subscription fees paid by premium users and sponsored content as the main sources of earnings.

For the uninitiated, programmatic ads are administered by a system that relies on complex algorithms to trigger ad deployment to a set of specific criteria. The process is versatile and quick. It allows advertisers to save resources by automating media buying at pre-determined rates, and book and optimise campaigns via a web interface. Optimisation ensures ads are only shown to desired audiences and on relevant pages – and with LinkedIn’s wealth of business professional indexed by industry, job type, gender, nationality, interests, skills and much more, brands will be able to really drill down to find the most valuable audiences for their ads.

LinkedIn hasn’t hung about as it starts to repay Microsoft’s investment (which, incidentally was four times what Microsoft paid for Skype), but the fundamental question of whether or not $26bn is an extreme price to pay for an audience still stands.

Following the announcement of the Microsoft deal to buy LinkedIn, Martin took a look at the bare facts. They are:

– LinkedIn made no money last quarter

– Microsoft paid $196 per share for the site (‘steep,’ said Martin)

– ‘But the valuation per user looks even steeper,’ he said

– The $26bn price tag values each of the 433m users at around $60

A later examination of the deal by the Guardian looked at how many of those 433m users were ‘active’ – when only active users are considered, it said, the price skyrockets to $255 per user. So, again here, I raise the question that Martin raised in his original piece: how much would you pay for your audience?

Well, surely that depends on the scale of your ambition…

As William Furlong points out in a post on B2B Marketing, the deal is (in part, at least) about owning the business screen, owning the entire workday – and then providing services and functionality to members of B2B community so they can market directly to LinkedIn users.

“Just imagine having the ability to push out Outlook email via a ‘drag and drop’ LinkedIn InMail contact, and park that activity into Microsoft’s Dynamics CRM,” argues Furlong.

“And having your marketing team, via a self-service UI, deploy an ‘always on’ one-on-one message to every one of your prospects.

“And, later on, being able to create a PowerPoint and instantly cut and paste, company information and sales data into the deck from LinkedIn.”

So there we have it: audience and a simple, straightforward marketing route. But that’s just one aspect of a deal that gets more intriguing the more you look. It’s not just eyeballs for ads that Microsoft has bought, it’s also as much about creating a space where its existing technologies are vital to the infrastructure.

“I’m a big believer in communications tools and productivity tools, because that’s what empowers people to be great at their job,” said Satya Nadella, CEO of Microsoft, as he announced the deal.

“But think about taking that and connecting it with a professional network and really having the entirety of your professional life enhanced, empowered; acquiring news skills to make you better in your current job and finding that next better job, that’s the vision.”

We’re talking about the post-Windows world, where Microsoft plugs its crop of technologies into a social network that will become increasingly more like a workday ecosystem that contains a range of functionality and tools that ensure you never have to leave the site to perform business-related tasks.

“To consumers, Microsoft’s best-known brands are Windows, Office and Xbox,” said the Guardian. “But it is its back-office systems, and especially software for large businesses to manage their IT and customer relations, that really generate cash and profits.

“Nadella cited the potential of walking into a meeting and, through LinkedIn’s integration with a calendar and database, know all the salient details about the attendees.”

It used to be the case that enterprise would pay licenses to run Microsoft software locally on its machines, often this would be expensive, difficult to manage, and annoying to update. Now, as the Guardian points out, much of the functionality of this software is available at low-cost, and haste-free, from rival providers as a cloud-based service (so called SaaS, or software as a service, providers).

With that in mind, when you revisit the question about how much you’d pay for audience, if your $26bn isn’t just going to bringing in ad revenue but help ensure the durability and longevity of your existing software products in the face of lean, new competition, then the price tag starts to make more sense.