Why LinkedIn Corp Spent $1.5 Billion on Lynda.com

Source: Lynda.com

If you found the perfect job listing on LinkedIn , but you were missing some of the required skills, the newest LinkedIn acquisition should be right up your alley. Last week, LinkedIn purchased e-learning website, Lynda.com, for $1.5 billion. That is by far its biggest acquisition, a title previously held by advertising company Bizo, announced last July for $175 million. It is also a very different acquisition compared to typical LinkedIn deals, which mostly revolve around improving its social platform.

But Lynda.com is an acquisition that fits surprisingly well with LinkedIn but would not make sense for another social network, such as Facebookor Twitter. Let's look at some of the strategy behind the purchase and how it might affect the bottom line.

Filling the skills gapIn a blog post from 2013, LinkedIn CEO Jeff Weiner wrote that unemployment is the result of a gap between the skills needed for a job and the skills people have, and he called for an overhaul of the education system. While not nearly as extreme as Weiner's vision for the future of American schools, Lynda.com provides a valuable service to help close that skills gap.

LinkedIn has the unique ability to identify skill gaps among its users. It can then push users to subscribe to Lynda.com to take a course to fill those needs. In turn, recruiters on LinkedIn can search for users who have taken a specific course, while Lynda.com can push users who have taken a specific course toward specific job listings.

Neither Facebook nor Twitter offers similar synergies. While Facebook is attempting to get into the workplace with Facebook at Work, it is more about networking with coworkers than it is about developing skills and finding a new employer. Twitter, meanwhile, is all about real-time information, so the e-learning video site does not fit well with the existing platform at all.

Engaging contentAnother thing the deal adds to LinkedIn is a reason for people to regularly return to its website. Unlike Twitter and Facebook, most LinkedIn users do not visit the website on a regular basis. The company has been working to correct that problem with its acquisition of Pulse, a newsreader app, as well as its influencer program that encourages long-form content from big names in business.

A person taking a Lynda.com course will now be encouraged to return to LinkedIn while taking a course. That may lead more people to browse influencer content or job listings, which leads to more ad impressions.

Lynda.com subscribers may be able to share course introduction videos on their LinkedIn stream or upload video courses of their own and share with their network. That would increase the amount of video content on LinkedIn, an area both Facebook and Twitter have been working to improve as well.

Video content is important to social networks as it increases the amount of time spent on a site and provides an opportunity for video advertisements, which typically carry a premium over static display ads.

The impact on the bottom lineLinkedIn is paying Lynda.com $780 million in cash with the rest of the $1.5 billion price tag coming in stock. The company has about $3.4 billion in cash and investments on its balance sheet, so it can certainly cover the costs.

More importantly, Lynda.com is profitable, which means LinkedIn will see an immediate return on its investment. Lynda.com generated more than $100 million of revenue in 2012 when it grew sales more than 40%. While we do not have figures on its exact revenue or profitability, $100 million would represent 5% of the top line for LinkedIn in 2014. For a company that posted a GAAP loss of $15.8 million last year, $100 million or more in profitable revenue should help move the company back into the black.

The article Why LinkedIn Corp Spent $1.5 Billion on Lynda.com originally appeared on Fool.com.

Adam Levy has no position in any stocks mentioned. The Motley Fool recommends Facebook, LinkedIn, and Twitter. The Motley Fool owns shares of Facebook, LinkedIn, and Twitter. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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