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Why LinkedIn Won't Lose its Buzz After Microsoft Deal

Microsoft's history of acquisitions reveals a list of companies that were once hot but have since lost momentum.
A judge ruled that Linkedin must face a lawsuit by customers who claimed it violated their privacy by accessing external email accounts.
LinkedIn headquarters in Mountain View, California.Marcio Jose Sanchez / AP file
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Microsoft's history of acquisitions reveals a list of companies that were once hot but have since lost momentum. But investors think LinkedIn escape the same fate.

Microsoft agreed to buy LinkedIn for about $26.2 billion in cash, as Microsoft seeks to accelerate the growth of Microsoft Office 365 and Dynamics, according to a statement released on Monday. Investors have high hopes for the new tie-up between Microsoft and LinkedIn, sending LinkedIn shares soaring 47 percent on the news of their merger.

The merger hopes to place Microsoft at the forefront of professional software services, to both enterprise customers and individuals. Now the pressure is on new Microsoft CEO Satya Nadella to show how this buy will differ from Microsoft's spotty portfolio of past purchases.

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Perhaps most famous is Microsoft's $7.2 billion acquisition of Nokia's mobile device unit in 2014. After managing to grab just 2.2 percent of the mobile market in 2015, according to IDC, Microsoft wrote off the entire purchase and drastically cut headcounts.

Although it was unsuccessful, Microsoft also aggressively pursued an acquisition of Yahoo for more than $45 billion.

It's hard to know what would have happened if that acquisition went through. But as Yahoo again hits the auction block, current bids are said to be around $5 billion, a steep decline from what Microsoft would have paid if it had gotten its way.

Nokia and Yahoo provide the most stark examples of shortcomings in Microsoft's past acquisition strategy. Indeed, the fact that Microsoft has never done well with large mergers is a con of the LinkedIn deal for UBS analyst Brent Thill, who warned in a research note of a potential "culture clash" between the younger LinkedIn and the more grown-up culture of Microsoft.

Microsoft also owns a slew of seemingly middling companies that apparently lost their hype under the enterprise technology giant's umbrella.

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Microsoft's workplace social network Yammer, for instance, failed to retain the buzz of rival Slack, Google Search trends data shows.

Still, while a company like Skype (acquired for $8.5 billion in 2011) may not appear cutting edge compared to Apple's FaceTime, it still holds significant usership. Google trends data shows that worldwide, Skype and even Hotmail (which was rolled into Outlook in 2013) retain heavy search volume compared to FaceTime or Gmail, respectively.

While the LinkedIn acquisition is a bold move, IDC researcher Crawford Del Prete said it could be great for LinkedIn, and could drive new value to Office, Skype and Azure.

"It's also a thriving, relevant platform at scale," Del Prete said. "Nokia had lost scale in smartphones, Hotmail was not at scale in messaging (compared to the winners), and I believe Skype is a long term play that's working."

— CNBC's Arjun Kharpal and Ari Levy contributed to this report.