Big Microsoft News on LinkedIn, But Don’t Forget About SAP

By Jeff Muscarella

Partner, IT and Telecommunications, NPI

June 21, 2016

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It’s been an interesting month in Microsoft news. The biggest by far was Microsoft’s announcement that it will be acquiring LinkedIn for $26.2B. If you haven’t had a chance to read Peter Bright’s thoughts on the acquisition on ArsTechnica, give it a gander. His observations echo many of my own questions.

On the surface, the acquisition seems like a good fit. Microsoft and LinkedIn share a similar user base and the integration of LinkedIn’s data with Microsoft’s messaging, collaboration and CRM offerings has potential. But it also has redundancies. And Microsoft doesn’t exactly have the best track record for large acquisitions. Nokia, anyone?

From Mr. Bright’s article:

“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 totaling 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…Microsoft has made forays into the corporate social networking space before with its $1.2 billion purchase of Yammer in 2012…Although there were high hopes for this acquisition, its success seems to have been limited.”

But perhaps Microsoft will successfully pursue a strategy that harnesses this latest investment to contribute momentum to an area where they’re doing best – and that’s the cloud. According to Microsoft’s Q3 earnings report, Office 365 revenues grew by 63 percent while Azure revenues grew 120 percent.

That leads me to another headline – one that’s less sexy, but more immediately relevant to Microsoft’s enterprise customers. Last month, Microsoft and SAP announced SAP HANA data analysis tools and S/4 HANA applications will soon run on Microsoft’s Azure cloud computing service (by Q3 2016). This will allow Microsoft customers to run SAP software without installing it on their own servers, and let employees use SAP tools without leaving familiar Microsoft environments.

SAP (like everyone…) is on a mission to have more customers run its flagship applications in the cloud. Partnerships with AWS, Microsoft and Apple will help them achieve it. This agreement also serves one of Microsoft’s goals – to add more outside programs to its Azure service (like Oracle’s and those built on Linux).

The integration and interoperability between these highly competitive vendors signals a big shift in enterprise IT. Companies are demanding more interoperability between their cloud applications and infrastructure – and meeting those demands is one way vendors can accelerate customers’ migration away from on-premise offerings to the cloud.

It will be interesting to see how this plays out over the next 12-18 months. Is there a monetization opportunity for vendors as this shift occurs? Most likely. After all, the demand for more tightly integrated IT ecosystems has already spawned “indirect access” license fees (and is a dynamic shaping a more heated licensing audit environment).

What are your thoughts?