What Businesses Can Learn from LinkedIn

This post is not about LinkedIn, the IPO. It is about LinkedIn, the company, which is a textbook example of what makes a great information company. It has a combination of characteristics that are rarely found together in a single business information company:

  1. An enviable balance of revenue sources: LinkedIn makes money in three ways: premium subscriptions (21%), hiring solutions (30%), and marketing solutions (49%). Few business information companies have successfully built such robust, diversified revenue streams from both subscriptions and advertising as LinkedIn has.
  2. Ever-improving profitability: Whatever you may think about LinkedIn’s valuation, with revenues of $243 million (as of year-end 2010) and a 76% compound annual growth rate since 2008, LinkedIn is not a bubble company. Equally important, it has crossed the threshold for covering its fixed expenses and seeing profits accelerate. Although the company may well sacrifice profits in the short-run to invest in growth or new services, it is now positioned to realize the increasing profitability that information companies can enjoy only when they achieve sufficient scale.
  3. Horizontal yet specialized: Most business information companies serve specific vertical markets (financial services, construction, healthcare, etc.) and/or job functions (traders, nurses, HR managers, etc.). LinkedIn is completely horizontal, cutting across all markets and job functions. That rare position gives it almost unbounded appeal as a ubiquitous business tool. But LinkedIn has also developed a set of specialized applications from which it makes its money: employment services for hiring managers (accounting for half of its revenues), marketing services, and premium subscriptions offering added privileges and functionality.
  4. Global appeal: Many business information companies have trouble penetrating new countries, either because their content isn’t relevant or their services don’t fit the local business culture. With 50% of its members from outside the US, LinkedIn clearly doesn’t suffer from these issues.
  5. High value add: LinkedIn makes ordinary information — professional profiles and business contacts — very valuable through aggregation and cross-linking. As particles alone, this information has limited use, but its value explodes when made accessible as an organized collection overlaid with some basic search, browse, and linking functionality.
  6. Multiple, compelling value propositions: As a horizontal virtual Rolodex, LinkedIn could suffer from trying to be all things to all people. Instead, it has strong appeal as a research and networking tool for specific reasons that suit various types of users: job seekers, salespeople, hiring managers, and many others.
  7. Riding the network effect: LinkedIn gets more useful as it gains new participants. That’s the simple principle of a network effect. But in practice few companies have the brains or luck to achieve it. Because network effects tend to accelerate, now that LinkedIn has caught the wave, it is leaving competitors in the dust. LinkedIn adds a million new users every 10 days, and with 100 million members and 75 million unique monthly visitors, it has clearly become the place for professionals to do research and connect.
  8. Embedded in business: Just as “Google” and “Facebook” have become verbs indicating the extent to which they are now embedded in daily life, LinkedIn has become an integral part of the business mating dance. Connecting on LinkedIn has become a standard protocol like exchanging business cards, but without having to meet face to face. Sending a link to one’s profile on LinkedIn is now widely used instead of sending a resume, showing that LnkedIn is well on its way to becoming the professional profile of record. (Too bad “LinkedIn” doesn’t transform well into a verb.)
  9. Growth without noise: Despite its broad appeal and growth, LinkedIn remains uncluttered in its content, presentation, and community norms. It hasn’t been overwhelmed like Facebook with a proliferation of functionality or the promiscuity of social networks in general. Connecting on LinkedIn remains a simple, but regulated process. LinkedIn remains a civilized place to do business and has so far avoided Yogi Berra’s complaint about a famous restaurant: “Nobody goes there anymore. It’s too crowded.”

About Lee Greenhouse

Longtime strategy consultant focused on the business of information content, applications, and services.
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