How LinkedIn Will Benefit Microsoft in Social Network Space

Previously in the series, we touched on various reasons why LinkedIn (LNKD) appeals to Microsoft (MSFT). We also discussed how Microsoft’s acquisition of LinkedIn will boost its Office 365.

In the past, Microsoft spent $1.2 billion to acquire Yammer, a company operating in the enterprise social networking space. However, looking at Microsoft’s current offerings, the acquisition didn’t meet the company’s expectations. Microsoft also invested in Facebook (FB) in its early-stage development. However, the investment didn’t bear much fruit, and Microsoft is struggling to make a mark in the enterprise social network space. Let’s discuss how LinkedIn’s acquisition will pave the way for Microsoft in the social network space.

Verge highlights how Microsoft will benefit from LinkedIn’s acquisition: “Microsoft itself has more than 1.2 billion Office users, but it has no social graph and has to rely on Facebook, LinkedIn, and others to provide that key connection.”

Here, “social graph” refers to the online networking idea that enables us to see how users through their hobbies, interests, and activities are connected and linked to each other. All in all, it provides a significant amount of data relating to customers.

By acquiring LinkedIn, Microsoft will have access to this valuable data, which it currently doesn’t have, as its offerings don’t have a social-networking component unlike its peers Google (GOOG) (GOOGL) and Facebook (FB). With LinkedIn under its umbrella, Microsoft will get immediate social graph access without going through the pain of designing and developing it.

Investors looking for exposure to Microsoft might consider investing in the Technology Select Sector SPDR ETF (XLK). While XLK invests ~10.6% of its holdings in Microsoft, it also has ~38% exposure to application software.