So far this year, there has been a lot of hype around social networks and their possible IPO’s but almost all such discussions discuss only Facebook and Twitter. To be fair, those are also the first two ones that we covered. But we actually think that there might be even more value in smaller network LinkedIn, which was founded by former Paypal executive Reid Hoffman. To be certain, the network is very different and so are its ambitions. It will probably never become as popular as Facebook or Twitter but that is not its ambition either.
What is LinkedIn?
LinkedIn is a social network that is similar to Facebook in many ways. You have a profile which you can update and then you can add connections. But instead of adding former girlfriends, high school friends and family, this network concentrates on your professional connections. So you would generally add your colleagues (past and current) as well as any others that you have in your professional network.
For centuries, finding a better job has always been very much about who you know. Many jobs are not posted anywhere and when they are, it is not necessarily the best candidate that will land the job. Quite often, knowing the right person will give you a huge push as well. That is why many are more than willing to join the network.
With such a great field of workers, it also becomes a dream playing field for companies that are looking for candidates. It already boasts a very impressive 50 million members with thousands more joining every day. What better way to find a few good candidates quickly????
Recently I did a trade going short on Monster and one of the reasons is that employers are increasingly looking into websites like LinkedIn to get their candidates which does affect the interest in more standard job posting websites such as Monster.
In my opinion, one of the most positive aspects about LinkedIn is that has a lot more revenue diversification than other social networks such as Facebook and MySpace (Twitter remains to be seen). Now this is not a knock on LinkedIn’s advertising possibilities. It has a very attractive audience and while they might be a bit biased, just take a look at their own research data , the numbers could probably be debated but I doubt even the Wall Street Journal would argue with most of the conclusions. The “average member” on LinkedIn is young, connected and generally has a good career. Rarely have I seen unemployed dropouts on the website (has not happened actually).
But their biggest source of revenues, and the reason why such a young internet company has been profitable for 2 years, is what it can do for corporations. They offer several subscription models that basically make it possible to:
-Search through loads of data
This can help to find possible clients, employees, etc. And since such messages are limited even with subscriptions, those that are sent (such as job offers) are generally of great value for both parties, an ideal situation for the website to keep all parties happy. I would think that such services will play a critical role in the future of LinkedIn and they will be much steadier than an advertising only model such as the ones currently used by Facebook & MySpace.
The good news for those who would like to invest is that Linkedin CEO Jeff Weiner is open about its intention to do an IPO within 2 years and since the company is already profitable (and has been for 2 years), it will be easier to get it done than many other web companies. “We’re well ahead of plan for this year which is great considering the macro economy”.
However, since they still have the vast majority of the $100 million it raised through venture capital, there probably is no hurry to get it done right now. “When everything is working, why sell? We are trying to build a great company that will be around for decades”.