Most tech watchers were probably surprised by yesterday’s huge announcement that Microsoft Corp. is buying LinkedIn.
Many were especially surprised by the reported price tag -- $26.2 billion. That makes the LinkedIn purchase one of the largest in the industry’s history.
So what does Microsoft expect to get from such a huge payout? One word – data.
That, at least, is the way that Doug Laney sees it.
Laney is vice president and distinguished analyst in the Chief Data Officer Research and Advisory Group at Gartner. Clearly Laney views the world through a data filter. But in his mind, Microsoft is doing the same with this deal.
“First, I'm not surprised that any cash-laden company today is making an information play,” Laney told Information Management. “This is in line with IBM acquiring The Weather Co and Facebook acquiring WhatsApp. Microsoft clearly realizes it's late to the information party. Sure it has the Azure Data Marketplace, but it has not had access to a massive and continually fed set of global market, employment, and industry topic content.”
Further, “while I'm not sure what degree of monetizable content Microsoft pulls from Bing searches, certainly it's a fraction of what Google has,” Laney explains.
But does the Microsoft/LinkedIn deal make sense in the long-term, at that price for Microsoft?
“What makes the most sense is the untapped value of all that content,” Laney says. “What makes the least sense is -- well, perhaps the price tag, but I'm no financial analyst -- is whether Microsoft is, or can be, positioned quickly enough to monetize all this content.”
Laney takes issue with fellow analysts that claim this deal is all about Microsoft’s move to the cloud.
“Financial analysts I listened to this morning yapping about "cloud this" and "platform that" have totally missed the big picture. It's all about the data,” Laney stresses.
“What can Microsoft do with all this content? Almost anything,” Laney says. “They can do almost whatever they want with the content, including transfer it.”
To stress his point about the real value here, Laney notes “Some of my colleagues anticipate some enhanced collaboration capabilities, maybe integration with Office 365, or Microsoft's CRM solution. But I don't think that's the big play here. Have I mentioned: it's all about the data?”
This strategy fits nicely into Gartner’s view of data value.
“According to our research, companies that are in the information product business have a four to five times higher market-to-book value than the average company. Actually what's called a Tobin's q ratio,” Laney explains.
“Information as an asset benefits from non-depletability, low creation costs -- especially when users are creating content for free -- low inventory costs, low distribution costs, and low repackaging costs -- compared to any other kind of asset,” Laney says. “And thankfully for info product companies, information isn't considered a balance sheet asset per GAAP, so they don't have to claim it. Too bad for the tax man, eh?”
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