Six months after Microsoft announced plans to pay more than $26 billion for LinkedIn, we now know even more about why the career-focused social networking site was so valuable. Today, Microsoft revealed that LinkedIn founder Reid Hoffman has joined its board.
It’s impossible to overestimate the significance of this move for Microsoft. CEO Satya Nadella is three years into a turnaround that few people believed possible. When he was promoted to CEO in February 2014, Microsoft was in a bad place. Six months earlier, the company had posted its first-ever quarterly loss. Steve Ballmer announced he would step down, but before leaving, he pushed through the acquisition of Nokia. It was a costly mistake. Microsoft ended up paying $7.9 billion for the Finnish cellphone maker, according to an April 2015 SEC filing; the company wrote off nearly the entire sum in the final quarter of 2015.
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Microsoft’s chief problem was this: Though the Redmond-ites made a lot of money, the company’s core business was declining, a dynamic that was set in motion more than a decade ago, when nearly every enterprise owned and ran Windows-powered PCs and servers. Microsoft had parked itself in the middle of Innovator Dilemma-land. The company had little incentive to invest in future businesses that might disrupt the business it was already in.
It also had a lousy reputation, particularly in Silicon Valley, where camaraderie and collaboration are hallmarks of tech’s evolution and every major player enjoys frenemy status with its adversaries. Microsoft wasn’t a company that partnered with outsiders. It scorned the open-source community and looked down its nose at tech upstarts. In a public conversation with Marc Andreessen in October 2014, investor Peter Thiel called Microsoft a bet “against technological innovation.”