On 6 December 2016, the European Commission ("Commission") has approved the acquisition of all shares of LinkedIn by Microsoft ("Transaction"), subject to conditions. As a result of the Transaction, Microsoft acquired the sole control of LinkedIn. The Commission's decision1 is conditional upon the compliance with a series of commitments to be applied by Microsoft in order to preserve competition between professional social networks in Europe.
The Transaction was also notified in the United States, Canada, Brazil and South Africa, and was cleared by these countries´ competition authorities. After receiving clearance from the Commission, on 8 December 2016, Microsoft and LinkedIn announced2 that Microsoft's acquisition of LinkedIn has officially closed. Microsoft, by acquiring LinkedIn, aims to expand the standalone business of LinkedIn, and to integrate LinkedIn's services and products within its own offering, enriching both the Microsoft and LinkedIn user experience3.
Parties to the Transactions
Microsoft, a global technology company based in the United States, develops, licenses, and supports software products, services and devices. Microsoft's products include operating systems for PCs, servers, and mobile devices, cross-device productivity applications, video games, as well as cloud-based solutions and online advertising. Microsoft also provides other software solutions, including customer relationship management, which is a type of software used by businesses to manage their sales, marketing and customer support activities4.
LinkedIn is also a United States-based company that operates an internet-based social networking service with millions of members globally, and which focuses on promoting professional connections5. It generates revenues through the following product lines: 'Talent solutions,' which include recruiting tools and online education courses; 'marketing solutions' which allow individuals and enterprises to advertise to LinkedIn's professional social network members; and 'premium subscriptions' for both consumers and businesses6.
The Commission's Investigation
As to the Commission's investigation, Microsoft and LinkedIn are mainly active in complementary business areas, except for minor overlaps in online advertising. While both Microsoft and LinkedIn provide some online advertising services, this is not at the core of either business. Thus, the Transaction only gives rise to limited horizontal overlaps while, at the same time, gives rise to a number of non-horizontal relationships7.
In accordance with the European Union Merger Regulation, the Commission focused on three particular areas during its investigations: (i) professional social network services, (ii) customer relationship management software solutions, and (iii) online advertising services. These three areas are succinctly briefed, below.
Professional Social Network Services
The Commission looked at whether, after the Transaction, Microsoft could use its strong market position in operating systems (Windows) for personal computers (PCs) and productivity software (including Outlook, Word, Excel and Power Point) to strengthen LinkedIn's position among professional social networks. In that respect, the Commission was concerned whether Microsoft would take advantage of its strong market position by pre-installing LinkedIn on all Windows PC's, integrating LinkedIn into Microsoft Office, and combine, to the extent allowed by contract and applicable privacy laws, LinkedIn's and Microsoft's user databases and, thus, shutting out LinkedIn's competitors from access to Microsoft's application programming interfaces8.
The Commission found that these measures could significantly enhance LinkedIn's visibility, LinkedIn would be able to expand its user base and activity, and it was also concerned that the increase in LinkedIn's user base would make it more difficult for new players to start providing professional social networking services in the European Economic Area9. The Commission's serious doubts arising from the Transaction in relation to the foreclosure of competing professional social network service providers caused Microsoft to offer a series of commitments to the Commission in order for the Transaction to be cleared.
Customer Relationship Management Software Solutions
The Commission considered whether after the Transaction, Microsoft would be able to shut out its competitors by obliging customer relationship management customers buying LinkedIn's sales intelligence solutions also to purchase Microsoft's customer relationship management software, denying its competitors access to the full LinkedIn database, thus preventing them from developing advanced customer relationship management functionalities also through machine learning10.
Moreover, since the Commission regarded Microsoft as a relatively small player in the customer relationship management market, which is competitive and characterized by the presence of strong competitors, such as Salesforce, Oracle and SAP, the Commission found it to be unlikely that the Transaction would enable Microsoft to foreclose these players and eliminate competition in this market11.
Online Advertising Services
The Commission found that, Microsoft and LinkedIn are both active in the provision of online advertising services. While Microsoft provides both non-search and search advertising services, LinkedIn is active only in non-search advertising services. Therefore, the parties' activities overlap only with respect to non-search advertising services. However, the parties are small players in this market, which is fragmented, and led by Facebook and Google12. In addition to the low market shares, the Commission confirmed that the Transaction did not raise concerns with respect to online advertising13.
Furthermore, the Commission analyzed whether the Transaction raises competition concerns resulting from the possible post-merger combination of the 'data' (essentially consisting of personal information, such as information on an individual's job, career history and professional connections, and/or her or his email or other contacts, search behavior, etc. with respect to the users of their services) held by each of the parties in relation to online advertising14.
Since the scope of collection, storage, process and use of data has changed dramatically in recent years, 'big data' concerns of the Commission in terms of competition assessments are increasingly growing and, thus, the Commission's approaches to acquisition of big data is cautious in merger transactions. Additionally, through the newly adopted General Data Protection Regulation15, which provides for a harmonized and high level of protection of personal data, and fully regulates the processing of personal data in the European Union, the Commission found that Microsoft's ability to have access to, and to process, its users' personal data in the future would be limited, since the new rules will strengthen the existing rights and empower individuals with more control over their personal data16.
The Commission decided that the Transaction does not give rise to concerns in relation to online advertising due to the following justifications. Primarily, Microsoft and LinkedIn do not make available their data to third parties for advertising purposes, with very limited exceptions. Secondly, the combination of their respective datasets does not appear to result in raising the barriers to entry/expansion for other players in this space, as there will continue to be a large amount of internet user data that is valuable for advertising purposes, and which is not within Microsoft's exclusive control. Thirdly, the parties are small market players and compete with each other only to a very limited extent in online advertising and its possible segments17.
The Proposed Commitments
In accordance with the competition concerns identified by the Commission, Microsoft offered a series of commitments with regard to the professional social network services market. These commitments are: (i) ensuring that PC manufacturers and distributors will be free not to install LinkedIn on Windows and to allow users to remove LinkedIn from Windows, should PC manufacturers and distributors elect to pre-install it, (ii) allowing competing professional social network service providers to maintain current levels of interoperability with Microsoft's Office suite of products through the so-called Office add-in program and Office application programming interfaces, (iii) granting competing professional social network service providers access to 'Microsoft Graph', a gateway for software developers18.
The Commission accepted the above-stated commitments of Microsoft, and approved the Transaction, without the need for an in-depth investigation. These commitments will apply in the European Economic Area for a period of five years, and will be monitored by a trustee.
Following Facebook's acquisition of WhatsApp, Microsoft's acquisition of LinkedIn, which is valued at approximately USD 26 billion19, is considered to be the greatest large-scale company transaction thus far in technology history. The Transaction is also significant in terms of the Commission's assessment of competition within the framework of the European Union Merger Regulation. Due to the Commission's concerns as to professional social network services, Microsoft offered a series of commitments to the Commission in order for the Transaction to be cleared. Another essential point to highlight is: How the 'big data' concerns of the Commission were reviewed in this Transaction. In this regard, the Commission`s review of this Transaction -particularly review of the acquisition of LinkedIn`s data by Microsoft- was waited anxiously and, nevertheless, the Commission dismissed its `big data` concerns in this Transaction.
3 Case M.8124- Microsoft / LinkedIn, p. 32.
6 Case M.8124- Microsoft / LinkedIn, p. 2.
7 Case M.8124- Microsoft / LinkedIn, p. 32.
8 European Commission - Press release.
9 European Commission - Press release.
10 European Commission - Press release.
11 Case M.8124- Microsoft / LinkedIn, p. 33.
12 Case M.8124- Microsoft / LinkedIn, p. 33.
13 Case M.8124- Microsoft / LinkedIn, p. 34.
14 Case M.8124- Microsoft / LinkedIn, p. 34.
16 Case M.8124- Microsoft / LinkedIn, p. 34.
17 Case M.8124- Microsoft / LinkedIn, p. 35.
18 European Commission - Press release.