LinkedIn : Relationships Matter
Background
LinkedIn is a social network that allows users to connect with other professionals in their field. Users can seek recommendations from past employees, network with other professionals in their industry, follow companies, and gain exposure to professional industry related events. It is the ultimate platform to brand oneself in the professional world. Rob Hoffman founded LinkedIn.com in 2003 with four other colleagues, Allen Blue, Jean-Luc Vaillant, Eric Ly, and Konstantin Guericke. The site launched May 5th 2003, and by the end of the year there was about 81,000 members and 14 employees. A year later the site saw growth amassing 1.6 members, with half of them being international. Present day LinkedIn has an estimated 90 million users, with numbers steadily growing. As a company emerging from web 2.0, LinkedIn is built on the foundation of wikinomics principles. Also it has managed to generate revenue by a subscription based service, a practice basically unheard of in this new generation of web based services where everything is practically free for users. LinkedIn has emerged from the clutter of other social networking sites as a key player in the new web 2.0 business models.
Strategies
LinkedIn takes a mass customization approach with users. Depending on the industry of current employment, the site will recommend companies for users to follow dependent on their areas of interest. For instance on my basic account I held several internship positions with media companies and indicated that my main areas of interest are marketing and advertising; the site suggests “companies you may want to follow" like MediaVest. For example on my page summary I listed that I worked on a Microsoft account; Microsoft and other brands I listed were some suggestions of companies to follow.
Principles of Wikinomics
The site employs the wikinomics principles of sharing and acting globally. A key principle of this social networking site is community, and establishing connections that can turn into business. LinkedIn made several design changes in their web layout that facilitates sharing with connections.
The site added features to broaden its reach across the web including adding a deeper twitter integration, opening up an API, providing a plugin with Microsoft Outlook and enhancing sharing options. The twitter integration allows users to tweet from the platform and pull tweets into the network using a hashtag. So far over one million users have opted to use the twitter integration since the date of its initial rollout on the site (Rao, 2010). A new feature has been added to recommend new people to follow based on one’s LinkedIn connections.
LinkedIn also upgraded its sharing feature with outside sources. Now when users share a news article, the site will allow members to customize the excerpt of the new article they want to post. The company is looking to penetrate all available media via enhancing sharing options. CEO Jeff Weiner says that the company will implant a product strategy bringing LinkedIn to any sites or platforms that people may use in their professional life (Rao, 2010).
The company is seeing fast growth in international markets with nations like the Netherlands and India expanding rapidly. The member base in the Netherlands is one of the most active and engaged with the highest number per capita outside of the U.S. (Wauter, 2010). Eugenie van Wiechen helmer of LinkedIn, Netherlands summarizes the companies main goals for going Dutch: “By creating programs and partnerships to raise awareness and engagement with LinkedIn in the Netherlands, I believe we can help Dutch professionals succeed in the new decade and beyond and put them on a path to business and career opportunities that otherwise may pass them by.” Wiechen states that the long term focus is establishing local partnerships and ramp up general operations (Eugenie van Wiechen Blog, 2010).
India has one of the fastest economies growing globally. It has 3.5 million users (more than their UK based membership) with 70,000 new users a week. LinkedIn set up operations in Mumbai in 2009, CEO Jeff Weiner cites that half of the company’s membership is international with LinkedIn seeing the fastest rate of adoption in India. The company’s main focus is to form strategic partnerships with media organizations, and distribution channels. The hope is to gain more users and promote the use of the platform by third party developers (Rao, 2009).
Business Model
LinkedIn targets the niche segment of affluent professionals. The company has managed to generate substantial revenue based on a three pronged revenue model:
- Upgraded Accounts: Business, Business Plus and Pro Accounts provide extra features, including thorough lists of who's searched for you and your company
- Hiring services
- Advertising comparable to the Wall Street Journal Demographic (Crum, 2009).
Though some of the features on LinkedIn are free, the site was designed on a subscriptions based model. LinkedIn cofounder, Konstantin Geuricke elaborates what differentiates his company from Facebook and other social networking sites: “We’re here to build a business, not to create a something cool. Myspace and Facebook have done really well. And I think they can monetize what they have built, probably by adding in more e-commere. But I think the opportunity on the business side is ultimately larger” (How LinkedIn Broke Through, 2006). The site uses a four tier subscription based model: business, business plus, executive, and pro. The business account costs 25 dollars a month, business plus 50 dollars per month, the executive 100 dollars per month, and pro account with 500 dollars a month. Opportunities to reach a greater group of people via inmail and searches increases with the level of service. The company has not released any numbers of what percent of their 55 million users pay to use their subscription based service. In 2005, it was estimated that 4.5 million users subscribed to the pro account, present day that company has not released any numbers of what percent of their 90 million subscribers use this service.
In addition to a subscription based business model, and recruitment solutions, LinkedIn generates revenue through advertising. The site has great demand from advertisers because of the users’ demographics. Generally social networking sites have a hard time selling ads for more than $1/CPM however LinkedIn’s display ads starts at $30/CPM going to $76 CPM. The site’s audience demographics are comparable to that of the Wall Street Journal with the average age of 41 with a household income of it’s members at 110,000 (Schonfeld, 2008). According to CEO Jeff Weiner the site sees an increase of 50 percent in advertising sales year to year (Carlson, 2009).
It is difficult to make a recommendation on how to generate revenue on subscription based services since these numbers are unknown. Despite unavailable figures, LinkedIn ascribes to a business model that is profitable and seems to be working in their favor thus far. In this age of web 2.0 where everything from networking sites (facebook, twitter and myspace) and service are expected to be free, LinkedIn managed to find a successful way to monetize their business through subscription fees.
The price premiums users (mainly companies and recruiters) pay for this service signals that they are receiving quality service and significant results. Quality service and reliability are two favorable associations consumers will start to build with the LinkedIn brand. From a strictly marketing standpoint when consumers pay for services especially on the caliber of service LinkedIn delivers, this is a good way to continue to establish brand equity with current and prospective users. As with most social networking sites providing service I recommend that the company employs different techniques that will protect the privacy of their users.
Works Cited
Carlson, Nicholas “LinkedIn: Still Profitable with Ad Revenue up 50%” 25 Aug 2009.
Retrieved on 27 Jan 2011 http://www.businessinsider.com/linkedin-still-profitable-with-ad-revenues-up-50-2009-8
Crum, Cris “LinkedIn Stands Out in Terms of Revenue” 6 Mar 2010.
How LinkedIn Broke Through . 10 Apr 2006. Bloomberg Businessweek
Rao, Leena “LinkedIn Tops 70 Million Users; Includes Over One Million Company
includes-over-one-million-company-profiles/
Schonfeld, Erick “LinkedIn to Launch its own Ad Network” 14 Sep 08. Retrieved on 27
Jan 11. http://techcrunch.com/2008/09/14/linkedin-to-launch-its-own-ad-network/
Wauters Robin “LinkedIn opens first office in mainland Europe, based in Amsterdam” 6
Jan 2010 http://eu.techcrunch.com/2010/01/06/linkedin-opens-first-office-in- mainland-europe-based-in-amsterdam/
This is an outstanding case analysis, Andrea. In addition to summarizing the employment of wikinomics principles, you also provided a very detailed summary of their subscription model. Very well researched and written.
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