The Commission’s decision in Microsoft/LinkedIn

Artificial Intelligence, big data and social networks

AntitrustItalia, 23 February 2017

Michele Piergiovanni, Salvatore De Vita, Cristina Sjödin

Mergers – IT, media and telecoms, DG Competition - European Commission

The views expressed in this presentation are personal and do not necessarily reflect the views of the European Commission.

1. Introduction

2. Online advertising/data and CRM – No competition concerns

3. Professional social networks – Competition concerns remedied

1

The Transaction

• Acquisition by Microsoft of sole control of LinkedIn through purchase of shares

• Notified on 14 October 2016

• Approved in Phase I subject to commitments

• Commission decision of 6 December 2016 (case M.8124 – Microsoft/LinkedIn)

2

The Parties

• Leading professional social network ("PSN"):

o 433 million registered members

o of which 107 million monthly active users ("MAUs")

• Turnover in 2015: EUR 2.7 billion, distributed as follows:

o Premium subscriptions sold to consumers (18%) which includes Sales Navigator (a sales intelligence solution)

o Talent and recruitment solutions (63%)

o Marketing solutions (19%)

• Leading supplier of Operating Systems for desktops

o [80-90]% market share (shipments)

o 300 million active devices with Windows 10

• Leading supplier of productivity software

o >90% market share (revenue)

o 1.2 billion users of Microsoft Office

• Provides Customer Relationship Management ("CRM") software solutions – MS Dynamics (below 5% market share)

3

1. Introduction

2. Online advertising/data and CRM – No competition concerns

3. Professional social networks – Competition concerns remedied

4

Online advertising and data

• Data Combination:

• Non-Search advertising:

o Combined market share below 10% in any EEA Member State

o Other competitors active

o No overlap on a potential market for advertising on PSN

• Search advertising:

o Only Microsoft is active

o Microsoft has small presence

o Google clear market leader

No competition concerns

o Combination of data subject to Data Protection rules

o Microsoft and LinkedIn were not offering their data to third parties

o Data are available from data providers

o Strong competitors remain active in the online non-search advertising market

No competition concerns Microsoft

data

LinkedIn data

Merged Entity data

Increase market power

Increase barriers to

entry ?

5

Customers of CRM and SIS

Providers of customer relationship management ("CRM") solutions

Providers of sales intelligence solutions ("SIS")

Microsoft could bundle LinkedIn Sales Navigator with Microsoft Dynamics CRM – However:

No ability

• Sales Navigator not considered "essential" by CRM customers or competitors (only 10% market share)

No incentive

• Sales Navigator's revenue mainly from customers of competing CRM solutions

• Loss of revenues from Sales Navigator likely be higher than additional revenues from CRM

No impact on effective competition

• Customer switching is not likely

• Alternative sales intelligence solutions available: Avention, D&B, Data.com

• CRM competitors would remain in the market

• Negligible impact on Microsoft's market share if all Sales Navigator's customers would switch to Microsoft

Current data flow

Bundling post-

merger

Foreclosure of CRM providers Conglomerate effects

6

Customers of CRM solutions

Providers of CRM solutions

No ability

• Unclear to what extent LinkedIn's full data would be useful for CRM machine learning :

• No evidence that LinkedIn would have given access to its full data for machine learning absent the merger

• Microsoft internal documents did not mention use of LinkedIn full data for CRM machine learning

• LinkedIn data one of several input for ML

No incentive

• Microsoft's incentive would be similar to the one to monetize Sales Navigator

No impact on effective competition

• Customer switching is not likely

• LinkedIn data useful only on certain CRM market segments

• Alternative sources of data for CRM ML available (e.g. D&B, Data.com)

• CRM competitors offer and would continue to offer CRM machine learning

Potential future data flow for CRM machine learning

Input foreclosure post-merger

Foreclosure of CRM providers Vertical effects

Microsoft would deny competing CRM providers access to LinkedIn "full data" to develop CRM machine learning – However:

7

1. Introduction

2. Online advertising/data and CRM – No competition concerns

3. Professional social networks – Competition concerns remedied

8

Professional social networks / OSs / Productivity software Market definition

• Market for professional social networks ("PSNs”)

• Irrespective of device / operating system

• PSNs market (including e.g. LinkedIn, XING, Viadeo) held distinct from:

• Enterprise social networks (e.g. Yammer, FB Workplace)

• “Vertical” social networks (e.g. Academia, Doximity)

• “Personal” social networks (e.g. Facebook, Twitter)

• Geographic PSNs market likely national in scope

• Market for operating systems for PCs, EEA-wide

• Market for productivity software for PCs, EEA-wide

9

Foreclosure of rival PSNs Conglomerate effects – Overview

1. Promotion of LinkedIn through combination with Microsoft Windows and Office products

2. Increase in LinkedIn membership and usage

3. Marginalisation of existing PSNs and increased barriers to entry for potential new PSNs

4. Detrimental effects on consumers

• Concern: Leveraging of Microsoft’s strong position from PC OS market / from PC productivity SW market to PSNs markets, leading to foreclosure of competing PSNs

• Steps:

10

1. Promotion of LinkedIn through combination with Microsoft Windows and Office products

• Pre-installation of LinkedIn application on Windows OS based PCs

• Integration of LinkedIn features into Microsoft Office products (e.g. Outlook, Word) and refusal of rival PSNs’ access to Microsoft APIs

2. Increase in LinkedIn membership and usage

• Increased visibility to large number of (potential) customers, i.e. Windows OS PC users and Microsoft Office users

• No effective counterstrategies available to competing PSNs

Foreclosure of rival PSNs Conglomerate effects – Steps 1-2

11

3. Marginalisation of existing PSNs and increased barriers to entry for potential new PSNs

• Network effects leading to "tipping" of PSN market in favour of LinkedIn

• Impact of network effects not sufficiently mitigated by multi-homing or by potential entry of new PSNs

4. Detrimental effects on consumers

• Reduced consumer choice regarding existing/new entrant PSNs

• Reduced consumer choice in relation to privacy (e.g. if marginalisation of XING in Germany/Austria)

Foreclosure of rival PSNs Conglomerate effects – Steps 3-4

12

• Microsoft commits to:

• Allow OEMs / PC distribution partners not to install the LinkedIn application/tile on Windows PCs.

• Not retaliate against or enter into exclusive agreements with OEMs / PC distribution partners to prevent them from distributing a Windows PC application/tile for competing PSNs.

• Allow end users to remove LinkedIn application/tile from Windows PC OS.

• Not "push" LinkedIn application/tile to end users through Windows PC OS (e.g. as part of Windows updates).

• Temporal/geographic scope: 5 years duration, EEA-wide.

Foreclosure of rival PSNs Commitments addressing Windows pre-installation concern

13

• Microsoft commits to:

• Continue to make available Office Add-in Program and Office APIs to competing PSNs to enable them to build add-ins for Office (downloadable from the Office Store).

• Continue to make available Microsoft Graph to competing PSNs.

• Allow Office add-ins of competing PSNs to run independently of integrated LinkedIn features.

• Allow Office end users to disable LinkedIn features integrated into Office.

• Temporal/geographic scope: 5 years duration, EEA-wide.

Foreclosure of rival PSNs Commitments addressing concern of Office integration

and denial of access to Microsoft APIs

14

•Any questions?