Yesterday, Microsoft announced that it was buying business-oriented social network LinkedIn for a casual $26.2 billion dollars. It didn't make a whole lot of sense then, and now, having slept on it and taken the time to think it over, it still doesn't make a whole lot of sense.

Microsoft's track record at big budget acquisitions is poor. Marketing firm aQuantive was bought for $6 billion in 2007; that led to a $6.2 billion write-down in 2012. Nokia's mobile phone division was bought in 2014 for €5.4 billion (about $6.1 billion). This led to write-downs totalling about $8.5 billion in 2015 and 2016. The company bought Skype for $8.5 billion in 2011, and while Skype continues to be a going concern, it has ceded ground in many areas. Messaging platforms such as WhatsApp and Facebook Messenger have boomed, leaving Skype behind. Upstarts such as Discord are also becoming viable alternatives for many users, and Skype users continue to have gripes about the clients, the quality of the network, and Microsoft's uncertain strategy for future development.

The LinkedIn deal—$26.2 billion dollars for a company that doesn't make a (GAAP) profit—dwarfs these past purchases.

It's also arguably the hardest to understand. Microsoft has made forays into the corporate social networking space before with its $1.2 billion purchase of Yammer in 2012. The logic behind this was a lot clearer. Yammer is described as a sort of Enterprise Facebook, offering a similar social presence but communications that is private to each enterprise. Its software-as-a-service subscription model was a neat fit for Office 365, which is also sold on a software-as-a-service subscription basis, and indeed, Yammer access is now included as part of Office 365.

Although there were high hopes for this acquisition, its success seems to have been limited. It presently looks as if the social model that's taking the enterprise world by storm isn't Facebook-style collaboration but rather good old IRC: Slack's Web-based spin on the venerable chatting protocol has won hearts and minds, and it's Slack, not Yammer, that is the hottest thing in this space. Even today, Slack would seem an obvious purchase for Microsoft. It's another software-as-a-service offering, so again it slots in neatly with Office 365, and one can imagine sensible integrations such as using OneDrive for Business as a more powerful version of Slack's filesharing, and the creation of Slack channels that correspond automatically with Exchange mailing lists and groups.

A little too different

But LinkedIn is a whole different kind of social network. LinkedIn is built for the much-loathed activity of networking. Its most (in)famous feature is its propensity for sending interminable numbers of e-mails in which people you've barely even heard of ask you to join their "professional network." (PR people also try to use it for pitching to journalists. They should not.) The biggest thing most people use it for—and to its credit, it does seem to be genuinely useful in this regard—is employment, with both job seekers and headhunters making good use of its services.

LinkedIn's revenue reflects this. Its biggest revenue stream ($557 million dollars for the first quarter of this calendar year) is Talent Solutions, which provides services to recruiters and companies trying to hire staff. Behind this is Marketing Solutions ($154 million of revenue), which sells advertising, on the site, and then Premium Subscriptions ($149 million), which includes Sales Navigator, a lead generation service.

Aside from advertising, none of these neatly align with Microsoft's other businesses. Microsoft's presentation to justify the purchase and describe the various growth areas doesn't really make the purchase seem more obvious. It asserts that the total addressable market of the combined companies is larger than either enjoys separately, and though this may be true if one narrowly compares, say, Office 365 and LinkedIn, this seems harder to justify if one considers the broader Office base of some 1.2 billion users. A good proportion of LinkedIn users are already going to be Microsoft users, and a great many Microsoft users will be on LinkedIn already.

The presentation also points to various points of integration. Some of these are logical—combining Sales Navigator with Dynamics CRM, for example, sounds like a mutual win—but others are less clear. For example, Microsoft says that LinkedIn profile information will be integrated and visible in Outlook, Skype, and other applications.

The value of integrating LinkedIn data is not nothing, but it doesn't seem to be twenty-six point two billion dollars, either. The Outlook Social Connector plugins enabled data from various social networking profiles to be shown within Outlook. One of the sources of this data was LinkedIn. The information this feature offered was limited (primarily status updates and a profile picture) and as such, so was the utility. Microsoft tells us that the new integration will be much more extensive than the old social connector, and that the company simply didn't have full access to LinkedIn's graph of relationships and information that it will have now. That's plausible enough, but leaves open the question of just how good this can be. Even if Outlook, Skype, Cortana, and so on, can tell you where your contacts went to university or give you a quick rundown on their employment history, is that something that Office 365 users are going to find so tremendously valuable? LinkedIn already does a mediocre-at-best job of monetizing this, with just 2 million paid subscribers.

More to the point, it's extraordinarily hard to see how the value of these opportunities is enough to justify the size of this purchase. Microsoft didn't offer any numbers on what level of customer or revenue growth it was expecting, and LinkedIn would have to explode in size to pay back for itself any time soon. Given the limited scope for the integrations and feature alignments, one wonders why Redmond couldn't have negotiated some kind of data access deal instead. Offer the social network $100 million a year to get full access to its profile data, build the same integrations into Dynamics CRM, Outlook, and Skype, maybe do some kind of advertising partnership with Bing, and proceed from there.

It's always possible that such a deal would result in such a huge benefit for both companies that some closer pairing would make sense, but at this point in time, the deal is a huge head-scratcher.