LinkedIn: Capitalizing on All Value Streams
LinkedIn creates and captures value from all of its customers.
LinkedIn’s mission is to create economic opportunity for every member of the global workforce. The company has distinct business and operations strategies, both of which are aligned to drive overall performance of LinkedIn.
Just as Facebook enables people to share and stay connected socially, LinkedIn creates value for members by bringing together members and providing relevant knowledge and opportunities that can enhance their professional careers. LinkedIn is a platform that takes advantage of the network effect benefits to bring incremental value to each LinkedIn member for every additional member that joins the network.
The company creates value for three distinct constituents. As a professional networking platform, the company brings together and creates a medium to connect people from all professional backgrounds. This provides members information to complement their in-person meetings. The second constituent LinkedIn creates value for is the companies and the hiring managers that seek talent to fill necessary vacancies. According to the results from the recent Annual Global CEO Survey administered by PWC, the top concern shared by an overwhelming majority of respondents is finding talent with the right skills. As a professional network where members voluntarily and eagerly choose to share their professional qualifications and publicize their skillsets, the platform uniquely creates the link between two mutually interested parties whose incentives are aligned. The way LinkedIn creates value for its third constituent, companies that offer productivity or workplace solutions, is to given firms an advertising platform to expose their products and solutions to customers that are most likely to be interested in utilizing them.
Unlike Facebook, LinkedIn captures value from all of the constituents it creates value for via three separate product lines. LinkedIn offers its members Premium Subscriptions that provides more information about other members and better access to companies with job openings. Companies that offer tools and services to potential customers pay LinkedIn to advertise on the website via its Marketing Solutions business. Lastly, the company generates the vast majority (64%) of its revenue in the Talent Solutions business where recruiters, HR, and hiring managers pay to use the website to find the best talent.
Though LinkedIn creates value for three distinct types of customers, the company is explicit in prioritizing the needs of members because management believes this is the most effective and profitable means to accomplish its mission and capture long-term value for all stakeholders.
In its 10K Filing, LinkedIn sets out specific operational strategies to achieve its business strategy. Each of the five strategies laid out aims to create value for the members in the LinkedIn community: 1) Foster Viral Member Growth, 2) Serve as the Professional Profile of Record, 3) Become the Definitive Professional Publishing Platform, 4) Expand International Presence, and 5) Increase Monetization While Creating Value for Members.
A key to achieving these strategies is to design solutions that empower professional success for its members. In order to meet this goal, LinkedIn needs to invest heavily in hiring employees that can both ideate and create these services. LinkedIn’s employee count grew exponentially in the past five years: 2010: 500 employees, 2011: 1,000 employees, 2012: 2,100 employees, and 2015: 9,200 employees.
LinkedIn is also deploying its capital to enhance its services to the three constituents. In 2014, the company acquired Bizo for $175 million to bolster its B2B Display Ad Platform. In 2014, it purchased Bright for $120 million to improve its Job Matching Service. In 2012, LinkedIn acquired presentation-sharing website Slideshare for $118.75 million. The comprehensive portfolio of services for each of the three constituents gives LinkedIn a clear competitive advantage. Though other social networking sites such as Facebook and Google are able to enter this market, it is unlikely that these potential competitors are able to deliver the same quality of product and service to each of the three constituents in the near future.
LinkedIn is sharply focused on serving its members as a way to create value and capture value. This business strategy is complemented by its operation strategies to hire talent and acquire companies to better serve its members and capture value through its members. As a result, the company has seen fantastic performance. In October 2015, LinkedIn has over 400 million members in more than 200 countries, making it the world’s largest professional network. The company’s total revenue also grew 37% year-on-year to $780 million.
Sources:
http://bmimatters.com/2012/05/16/understanding-linkedin-business-model/
http://blog.linkedin.com/2015/10/29/400-million-members/
https://www.linkedin.com/about-us?trk=uno-reg-guest-home-about
http://www.pwc.com/gx/en/services/people-organisation/publications/ceosurvey-talent-challenge.html
https://press.linkedin.com/about-linkedin
https://www.linkedin.com/pulse/20140723231438-3523560-list-of-linkedin-acquisitions
Nice job, John! Linkedin deeply understands its difference with other social networks: the professional settings, and is deploying all its resources around this core competency to capture value. Another area that Linkedin is trying to monetize is online education, which I think it’s a great idea. It has already acquired Lynda.com, an online learning company to provide career skills training for its core users. This move complements why people use linkedin and addresses users’ unmet needs.
John, it’s interesting to contrast LinkedIn with Facebook, which you started to do. Facebook gets its revenue from advertisers, while LinkedIn charges users for its premium products. Thinking back to the classroom discussion about which constituency you want to charge, it’s interesting to see that models have worked successfully.
Interesting post John, especially the different monetization models compared to FB or any other “Social network”. Would be interesting if they could expand and acquire job search companies or firms like Glassdoor to tie in with professional networks.
John – really like this and so interesting to read. I have used LinkedIn personally and also for work – so interesting to get both sides juxtaposed with the third group. I think the thing that stuck out to me the most here was your comment about quality. I think that you make a good point about the services they have developed/ acquired, but I also think that much of the quality is derived from the sheer volume of members they have. Given the rival size of Facebook’s membership, if you think they developed a more robust professional offering, would that weaken Linkedin’s value prop?