LinkedIn: Connecting Professionals to their Dream Jobs
How to monetize network effects and create the largest professional network in the world.
It has been 12.5 years since LinkedIn was founded on May, 2003. Establishing itself as the largest professional network during this period, the company has achieved impressive milestones, such as a market capitalization of more than $30 billion (as of Dec 4th, 2015) and a user base in over 200 countries of approximately 396 million members (as of 3Q15 release to the market). LinkedIn is a clear winner in terms of aligning its business model to its operating model. The company creates value for its members, both individuals and companies, while managing to monetize properly on the value created.
LinkedIn creates value to individual members and companies by “connecting them to the people, knowledge and opportunities that matter most to them professionally”. In the professional network, members publish their professional background, interests, capabilities and future goals and, in exchange, LinkedIn provides members with access to products, tools, applications, contacts and opportunities for them to manage career interests. There is a win-win situation: to individual members, by connecting them with career interests, and, to companies, by connecting them to the desired talents. Each new individual who publishes his professional details adds value to the whole system, strengthening LinkedIn leverage of network effects.
As a strategic decision of its operating model, LinkedIn chose to operate in a freemium model: it offers a broad range of services to members without charging any price and, for those who want additional tools and accesses, it offers paid solutions. The freemium model strengthens network effects by significantly lowering the commitment a new user has to make to become part of the professional network.
LinkedIn generates revenues from three products lines: Talent Solutions, Marketing Solutions and Premium subscriptions. All the product lines are sold through two distinct distribution channels: an offline sales force targeting companies of varied sizes and industries, and an online self-serve channel that enables individuals and/or companies to purchase premium subscriptions. LinkedIn also has an established technology infrastructure hosted on a network located in multiple third-party facilities, leasing data centers services from other companies. It might be the case that, in the near future, LinkedIn will have to own its data center capabilities as its member community keeps growing (similar to what Facebook has done).
Below is a short summary of the three main product segments that the company uses to monetize over the value created to its members:
- Talent Solutions: products aimed to offer the best way for companies to find the right human capital that they are searching for. Products include LinkedIn Recruiter, which enables recruiters to make advanced searches and contact any individual
member in the network, and Job Slots, which enables a company to post a job position. Talent Solutions represents the main revenue stream for the company: 64% in the last published quarter. - Marketing Solutions: products aimed to enable advertisers to reach the member base. Products include Sponsored Updates, which enable advertisers to share content marketing messages to a target audience, and LinkedIn Ads, which enable advertisers to target ads to specific members based on the profile information. Marketing Solutions represents approximately 18% of the company’s revenues.
- Premium subscriptions: targets individuals and companies interested in premium service bundles to manage their professional identity, grow their networks and connect with talent. The company offers different bundles of premium subscriptions with prices varying from [ ]. Additional product features include access to unlimited InMail messages, transparency on who’s viewed your profile, and the Sales Navigator solution, which enables sales professionals to identify and manage sales leads. Similar to Marketing Solutions, Premium subscriptions represent approximately 18% of the company’s revenues.
LinkedIn also keeps investing to innovate its operating model to complement service offerings. It has recently made two important acquisitions: $175 M for Bizo in 2014, a company that offers targeting and analytics to improve display ads, and $1.5 BN for Lynda.com in 2015, an online learning platform that offers courses in areas such as Photoshop and basic HTML. The goals of LinkedIn with the two acquisitions were, respectively, to incorporate Bizo’s B2B advertising technology into its Marketing Solutions and to provide more access to education and skills acquisition to its members, helping companies to find proper human capital.
LinkedIn has leveraged the value it creates for its community and aligned its operating model to (i) generate enough barriers of entry for other companies, (ii) create significant network effects, and (iii) monetize and innovate in its product offerings. Therefore, the strong alignment between its business model and operating model resulted in a company valued at more than $30 BN and presence worldwide.
Sources:
2014 Annual Report
3Q15 Quarterly Report
Business Update November 2011
http://investors.linkedin.com/annuals.cfm
LinkedIn Will Acquire Business Marketing Company Bizo For $175M
LinkedIn To Buy Online Education Site Lynda.com For $1.5 Billion
https://www.google.com/finance?q=NYSE%3ALNKD&ei=i_pkVvCJNoG3e_XTmHg
http://thenextweb.com/insider/2013/05/05/linkedin-10-years-social-network/
After having studied FB in the case, I realized how much network effect creates and captures value for the company. LinkedIn is definitely the other great example of the network effect. Today, the company seems to focus on matching professionals and companies but it seems it has healthy ambition to broaden its business perspective to other human capital related field such as education.
LinkedIn is not yet popular in Japan and I haven’t utilized but this made me want to use the product more!
Great post on monetizing the network effects! It looks like LinkedIn makes most of its revenue from businesses (HR & marketing), so I wonder if it is willing to give up some of its personal premium subscription revenue in order to increase its network effect and generate even more revenue from businesses (moving it closer to the Facebook model). The current premium subscription fee is quite hefty at $60/month, so by either lowering its fee or offering more features for its free users, LinkedIn could greatly increase its users and the amount of time users spend on the site.
Great Post! As I think about LinkedIn’s growth potential I wonder if partnerships with MOOC’s as well as it’s own acquisition of Lynda.com is the path forward. In my mind, LinkedIn wants to be the one stop site for all things career related. They have recently integrated Pulse which provides articles/blogs based on one’s own interests (Influencers and Interests you follow) as well as those from your network. I think the next step is for LinkedIn to start thinking about what their users really want to do. Sure, they may have been a data scientist in the past but maybe they now want to become a user experience designer. How do they get their? What classes/certification do they need to work towards? I think leveraging Lynda.com and other potential partners is a great way to get into this personalized service. Beyond this, why not offer true career coaching. Given one’s network who should the user reach out to? LinkedIn has a top of opportunity and it will be interesting to see what direction it goes. Thanks for the insights!
Thanks for a great post on LinkedIn! In our recent Facebook case, we learned that how a company can create value through connecting people and monetizing through the information/insights they gained during the process. In my opinion, the information/data LinkedIn is driving and collecting is far more meaningful and possesses higher potential than Facebook’s. LinkedIn is connecting people who are already business savvy. It can easily expand its service into helping users forge partnerships, improving corporate communities, designing corporate training, etc., or possibly creating a solution for sales forces. It was smart to prioritize the investments/acquisitions on Bizo and Lynda. Bizo would help improve the revenue stream from advertising (similar to how Facebook makes money). Lynda taps into the education industry, and directly channels future users to LinkedIn. I think with the right execution, LinkedIn will have a long and healthy path ahead.
Nice post! Prior to school I worked with many network-based companies and was constantly impressed by LinkedIn. LinkedIn not only has a terrific product with a loyal user base, but it also is an incredibly well-run company — it is on the forefront of big data analytics, has a strong culture and has business forecasting / systems in place that beat Wall Street estimates for the company nearly every quarter. There have been some very high profile tech IPOs in the last five years with varying degrees of success. LinkedIn has proven to be one of the most successful public technology companies. I’m interested to know if you know much about their business / operations side that allow them to beat Analyst expectations on Wall Street constantly?