An American duel in Brussels: Salesforce against Microsoft over Linkedin deal

Visit by Margrethe Vestager, Member of the EC in charge of Competition, traveled to Paris where she gave a press conference at the EC representation about how competition serves citizens. © European Union , 2016 / Source: EC – Audiovisual Service / Photo: Silvère Gérard

When earlier this year Microsoft snapped up the world’s headlines by announcing it would have acquired LinkedIn with a colossal $26.2 billion deal, everyone was already preparing for the shockwaves this move would have generated. Last week, US cloud computing company Salesforce.com  openly urged European Union regulators to block the acquisition over unfair competition concerns. The breaking news made clear that antitrust will be once more a huge weapon for competition, and that the match will be once again played on the EU field.

Microsoft’s biggest move

US giant Microsoft Corp. announced three months ago a deal to buy the world’s largest professional networking platform LinkedIn, with an all-cash deal worth a total of $26.2 billion, $196 a share. The deal represents the company’s largest purchase and one of the biggest technology acquisitions ever in history. Microsoft indeed has been chasing the acquisition desperately, in a strong attempt to revitalize its activity after some tough years behind competitors. Chief Executive Satya Nadella openly declared he was hoping the deal will open new horizons for Microsoft’s Office suite to escape a saturated market.

Thorny issues

The entire Redmond, Washington-based company had hoped indeed to get EU approval quickly and to be able to close the deal in the next few weeks, however the situation looks now a bit more complex. Last Thursday, the Californian Salesforce.com openly said the deal threatens innovation and competition, and formally urged the European Union, regular punisher of Microsoft, to take a close look at Microsoft’s takeover of LinkedIn through an official statement.

“By gaining ownership of LinkedIn’s unique dataset of over 450 million professionals in more than 200 countries, Microsoft will be able to deny competitors access to that data, and in doing so obtain an unfair competitive advantage”, stressed Burke Norton, Salesforce’s Chief Legal Officer. Mr. Norton said the deal also raises “significant antitrust and data privacy issues” that Salesforce thinks US and European Union authorities should “fully scrutinize”. “Microsoft’s proposed acquisition of LinkedIn threatens the future of innovation and competition”, he continued.

Microsoft’s reply

Microsoft reportedly responded by pointing out that the deal had already passed regulatory muster in some countries, as published last week by the Wall Street Journal, and that it is Salesforce, not Microsoft, that dominates the market for software that handles customer relationship management. “Salesforce may not be aware, but the deal has already been cleared to close in the United States, Canada, and Brazil,” said Brad Smith, Microsoft’s president and chief legal officer. “We’re committed to continuing to work to bring price competition to a CRM (customer relationship management) market in which Salesforce is the dominant participant charging customers higher prices today”, he added.

A longstanding story

The clash is part of a longstanding argument between Microsoft and Salesforce. Both companies indeed put a bid for LinkedIn earlier this year, but Microsoft won out. The rumours around an attempt by Salesforce to purchase the social network Twitter Inc. would show a plan B was already in place anyway. Putting this very least aspect to one side, it is still plain to see why Salesforce is worried about this move by Microsoft: LinkedIn will give Microsoft access to a potentially unlimited amount of clients’  data, and so potentially enhance its CRM very quickly.

CRM income

The entire Saleforce’s turnover basically comes from a CRM product, being the top provider of software for customer-relationship management, according to Gartner Inc. In 2015, it had 20 percent of the global market by revenue, while Microsoft was No. 4 with 4.3 percent, as reported by Bloomberg. Now Salesforce’s biggest concern is that Microsoft will shut down access to LinkedIn data, cutting down its growth potential.
Just yesterday, Microsoft’s President Brad Smith, while speaking to the press in Dublin, denied Salesforce accusation that they will cut off LinkedIn data for Microsoft’s competitors. “It is not something that we have any intention of doing”, he said according to the Irish Independent. “The LinkedIn data is public today and we want to make that data useful in lots of new ways”. Despite Mr. Smith’s words, Saleforce’s concerns naturally still remain.

The EU data knot

Simple as it sounds though this is a case of pure competition; all about the most powerful currency of the future: data. Hence, Salesforce could not have chosen a better moment to let its complaint out. Only last Thursday, the European Commissioner for Competition Margrethe Vestager delivered a speech on competition and data handling. “Companies need to make sure they don’t use data in a way that stops others competing”, she said at the beginning of her speech. “Data could be an important factor in how a merger affects competition. A company might even buy up a rival just to get hold of its data, even though it hasn’t yet managed to turn that data into money”, she underscored.

Despite never mentioning Microsoft, Salesforce.com and LinkedIn, she used very clear-cut words that sound indeed like a premonition. “We are therefore exploring whether we need to start looking at mergers with valuable data involved”, she said. “We can show people that companies that use big data have to follow the rules. So I will keep a close eye on how companies use data,” she continued. “I’m sure that the European Data Protection Supervisor and BEUC will do the same. And between us, I’m convinced that we can make big data not a threat, but the key to a better future”.

A deeper look

Salesforce’s request for an EU investigation does not necessarily mean that  the Commissioner Margrethe Vestager will open an antitrust file against Microsoft. However, all the noise that Salesforce’s statement has raised around the gigantic acquisition will possibly not help Microsoft in its attempt to conclude the merger by the end of the year. Normally even if the EU will not formally block Microsoft’s move toward the acquisition of LinkedIn, it could decide to take a deeper look at the deal, dragging the whole question into a scrutiny process that would last several months.

In principle the Commission’s preliminary review of merger and acquisition deals lasts 25 working days, which can be extended by about four months “if it has serious concerns”. But surely this is something that Microsoft, a regular recipient of gigantic EU fines, has almost surely considered when the first bid to acquire LinkedIn was presented.