Commentary

LinkedIn Turns Social Networking Into A Viable Business

Now that LinkedIn has mastered how to monetize online social networking, it is out to do itself one better.

It is no accident that the 5-year-old professional business network has more than tripled its page views in the past year, placing it fourth behind Facebook, MySpace and Classmates. Or that it is profitable on nearly $100 million in annual revenues equally supported by advertising, premium subscriptions, classifieds and corporate solutions. LinkedIn is stunning proof that social networks need not rely solely on advertising--and that it works best in small, highly selective doses in safe, predictable environments.

The key to the monetization challenge vexing most other social networks is having a well-defined, engaged and marketable user base, says LinkedIn CEO Dan Nye. It must capitalize on offering its core network-building features for free, while charging premiums to companies and members for utilizing the user base for recruitment and direct contact.

No other business-related social networks have been able to emulate that delicate three-way model enough to matter. A deeper dive into Mountain View. Ca-based LinkedIn reveals why. Nearly half of its 24 million member base is outside the U.S.--putting it on the fast track to growth along with emerging markets, especially in Europe and India, although its site globally is available only in English. LinkedIn will roll out foreign-language versions and expand into other international markets later this year. A string of new mobile applications will also be designed for the business crowd--the only certifiable bunch of baby boomers to regularly use social-networking sites, according to JWT BOOM/Third Age. Overall, LinkedIn is defying recently slashed social-network advertising revenue estimates--now projected to be $1.4 billion by 2011, according to eMarketer.

Walt Disney's proposed parent-based social network potentially has all the same elements of a close-knit, protective community. Facebook and MySpace confront the larger issue of being more general in scope. The solution might be to more specifically cater to natural affinity sectors within their user base.

Some suggest that LinkedIn's Inmail could be further developed to rival the best of Google's SalesForce and Gmail, and Microsoft's Outlook as a proprietary email tool designed to reach large groups. The professional networking proposition of its Inmail is geared toward selling, buying, recruiting and managing contacts. It also could create more extensive RSS feeds and consider a subscription service that avoids even carefully filtered niche advertising.

One of LinkedIn's primary challenges is to be both functional and indispensable. It will remain proprietary enough to protect its franchise, but customize enough of its free basic level of service to make it even more attractive.

There are many layers of functionality that LinkedIn will unveil later this summer, thanks to third-party developers. Many of the new features will be geared toward companies and groups of employees at companies, providing them with private Web forums, group calendars, platforms for collaborating on projects, trade conference registration, peer coordination, etc. In addition to locking up existing members and attracting new users, it will set the stage for a long-awaited IPO, which could have LinkedIn going public in a stabilized stock market as early as 2009.

There is no rush. A $53 million round of funding from Bain Capital Ventures, Sequoia Capital, Greylock Partners and Bessemer Ventures gives LinkedIn a valuation of just over $1 billion. The social network has raised a total of $80 million in total outside funding, compared to the $250 million Microsoft invested for a minority stake in Facebook, giving that site a $15 billion valuation. LinkedIn can go about its next stages of development without the glare of the public spotlight and financial transparency, especially since many of its new features will provide companies with more ground to canvass their employees and seek job prospects within LinkedIn's protected confines.

LinkedIn is also struggling with more suitable and lucrative forms of advertising tailored to its business users. Even relying on the not-quite-right unit pricing of television and search engines, LinkedIn is able to command upwards of $75 premium unit prices. It could also cautiously enter the permission-based world of matching consumers and marketers.

A smart application would be to match specific products and services to target consumers in return for a percentage of facilitated transaction amounts as fees. Its trusted business niche makes it a natural refuge for advertisers that are skeptical of Google's online ad clout. At its core, it remains a premiere networking tool geared to established professionals (average age 41), who are interested in professional support, not party pix.

LinkedIn reportedly has been courted by Rupert Murdoch and News Corp., whose recently acquired Dow Jones would be a perfect fit. Such a move would be a meteoric boost for LinkedIn's 24 million user base, expected to swell to 30 million by year's end. The site is launching new coordinated efforts with BusinessWeek and CIO magazine, with links to their Web sites. It also is being used by presidential candidates in a heated election battle to heighten awareness.

Democratic presumptive nominee Sen. Barack Obama has been using his LinkedIn profile to poll users on ideas for supporting startups and small businesses and keeping America competitive. More than 2,000 responses came in the first day, demonstrating another revenue-stream for a social network that thinks and acts like a capitalist tool.

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