• Marketwatch, Friday, December 22, 2006 11:02 AM

LinkedIn, the social network for business professionals, received a very-high-sounding valuation of a quarter of a billion dollars recently from its venture-capital backers. Compare this to the $500 million valuation Facebook received from its backers. So where is its valuation comes from?

LinkedIn VP Keith Rabois says the company is exactly a year behind Facebook in terms of revenue, which means it should be generating between $45 million and $60 million next year--provided its users don't abandon the site for somewhere else. For a site that's mostly about networking (in the business sense), LinkedIn offers sponsors a very attractive user-base, filled with 20- and 30something young, upwardly mobile, business professionals.

Indeed, advertisers are thought to welcome vertical social networks. Smaller, specific audiences aren't a bad thing, especially if there's a serious purpose behind the project. That said, LinkedIn has 8.5 million members (30% to 40% of which are active), compared to MySpace's 140 million.

Even so, LinkedIn is making money; it does so through sponsorships, subscriptions to premium services, and job listings. About 45% of the revenue comes from subscriptions, which cost $20 per month for access to people outside of one's personal network. Big corporations, such as Microsoft and Salesforce, pay between $10,000 and $100,000 annually to let their internal recruiting staff use Linkedin's database for potential hires.

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