Here's Why Microsoft Will Buy LinkedIn for $26.2 Billion

Microsoft has been on the acquisition track for nearly as long as it's existed. There are so many deals that few get major notice. And yet, some of the do, like when Microsoft bought Yammerand then Skype. Now the company has decided to buy business social network LinkedIn for $26.2 billion in a cash deal, or $196 a share, a roughly 50 percent premium over Friday's closing price. The deal was concluded over the weekend and only reported now.

Not that the reason for the acquisition is the massive wealth that LinkedIn generates. The company has grown well enough, from 2012 revenue of $972.3 million to last year's $3 billion. That's still a drop in the bucket compared to Microsoft's 2015 $93.6 billion in revenue. And it's not that the body of intellectual property that LinkedIn demonstrates seems that stunning. LinkedIn currently has 205 patents and another 117 currently public patent applications. Microsoft's take of patents is currently 32,409, with 32,301 applications in process.

Microsoft won't even absorb LinkedIn. Instead, the social network will "retain its distinct brand, culture and independence," according to a joint statement. Jeff Weiner will remain LinkedIn's CEO and report to Microsoft's chief executive, Satya Nadella.

What LinkedIn has that Microsoft wants is connections -- business connections. And that's critical to the latter's strategy. Microsoft understands that computing and relationships to the business users that are its mainstay have changed. More people have moved to mobile, an area where the Redmond-based giant has struggled. Computing has shifted to the cloud, and while Microsoft is a significant player in that arena, it's a far cry from the influence it wielded when companies all had their own servers, whether directly own and run or contracted out to a service provider.

As the statement noted, LinkedIn has 433 million members across 200 countries and territories and 105 million monthly average users. Sixty percent of its traffic comes from mobile, with 7 million active job listings. Two-thirds of its revenue comes from recruiting tools.

Not only does LinkedIn extend Microsoft's quest to connect business users -- Skype and Yammer both previous examples of the same interest -- but there's an amazing amount of data. Microsoft will be able to see what people are doing in business, who's hiring, what the requirements are for various positions, and the like. To put it differently, this is a way to make the plans and expectations of companies all over the world transparent to a business that wants to sell them the technology they need.

Plus, Microsoft has software for contact management, customer relationship management, prospecting, and other activities that would dovetail neatly into LinkedIn. The social connections become a natural reason for people to take a look at what Microsoft offers.