In the post titled, ‘Understanding Business Model Fundamentals’, we learnt why do we need to understand business models and how to visually represent a business model using the ‘Business Model Canvas’. In this post, we will try to understand LinkedIn business model using the Canvas.
LinkedIn is the world’s largest professional network. As of 31st March 2012, LinkedIn had 161 million members in over 200 countries. LinkedIn helps the professionals stay connected with each other by creating and managing a professional identity and building a professional network. LinkedIn has implemented a Multi-sided Platform, which offers different solutions to different categories of users.
LinkedIn provides the following categories of solutions to its network members for free: An ability to manage professional identity using tools such as Profile and Profile Stats; An ability to build and manage professional networks using tools such as LinkedIn Connections, Invitations, and Introductions; Access to knowledge and insights using tools such as LinkedIn Groups, Network Updates, News, Answers etc.
LinkedIn is a good example of a Freemium business model. While the core offering is free for its network members, premium offering comes for a price. The premium offering includes tools such as LinkedIn InMails and Profile Stats Pro. The users can upgrade from a basic account type to Business, Business Plus, or Executive account types. The premium account types provide access to the premium offerings.
LinkedIn platform induces the same-side network effects among its members. This helps in growing the network through word-of-mouth or connection-request-emails. As the average number of member connections grows, the strength of the network improves. The more the network becomes strong, the more attractive it becomes to the users on the other sides of the platform. The users on the other sides of the platform include Recruiters, Marketers & Advertisers, and Developers.
LinkedIn offers LinkedIn Corporate Solutions, LinkedIn Jobs, and Subscription products to the Recruiters. LinkedIn Recruiter is their flagship hiring solution to find, contact, and hire candidates. Self-service postings help recruiters to post and manage job opportunities. LinkedIn Referral engine helps organizations leverage their employees network to find qualified candidates. LinkedIn provides job recommendations to its members over Job You May Be Interested In (JYMBII) section of a member home page. LinkedIn offers Talent Basic, Talent Finder, and Talent Pro as subscription products to recruiters and hiring managers. LinkedIn offers Job Seeker family of products – Job Seeker Basic, Job Seeker, and Job Seeker Plus – to its members to stand out to recruiters and hiring managers.
LinkedIn marketing solutions enable marketers and advertisers to reach their target audience. LinkedIn Ads is their self-service product to target advertisements to specific members based on their profile information. Advertisers can setup and manage multiple campaigns and continuously monitor clicks, impressions, click-through rates, and average cost-per-click. LinkedIn Ads for Enterprise product targets larger advertisers that receive dedicated account management and get access to additional marketing solutions such as Display Ads, Custom Groups, Sponsorships, Whitepapers, and Recommendation Ads.
LinkedIn provides a set of open APIs and embeddable Widgets to the developer community. These APIs and Widgets provide access to the content in the LinkedIn database and help the developers build third-party applications leveraging LinkedIn data.
LinkedIn revenues come from 3 key revenue streams: Hiring Solutions, Marketing Solutions, and Premium Subscriptions. For CY 2011, these 3 streams represented 50%, 30%, and 20% of total revenues of $522 Million. LinkedIn sells Hiring and Marketing solutions through field sales organization and through their website. The Premium subscriptions are primarily sold online. Field Sales organization comprises of direct sales force, agencies, and resellers. While online channel is characterized by lower average selling prices, the offline channel is characterized by longer sales cycle, higher average selling prices, and longer contract terms. During CY 2011, Field sales contributed 55% of the total sales, whereas online channel contributed 45% of the total sales.
LinkedIn business model can be represented over the business model canvas as follows. Click the image to see it on Full Screen.
As discussed earlier, LinkedIn drives almost half of its revenues from Hiring solutions. Here, LinkedIn competes with established online recruiting companies such as Monster+HotJobs, Careerbuilder, and Indeed.com, talent management companies such as Taleo, and traditional recruiting firms. Then, there are companies new to the recruiting industry such as BranchOut, which offers a Facebook application for finding jobs and recruiting employees. In a span of less than 2 years since its launch in July 2010, BranchOut has grown into largest professional networking application on Facebook with over 25 million registered users and 400 million professional profiles. With over 3 million jobs, it operates the largest job board on Facebook.
How big, you think, is the threat of BranchOut to LinkedIn? In case Facebook decides to acquire BranchOut, then how big the threat can become? On 3 May 2012, LinkedIn announced acquisition of Slideshare, a leading professional content sharing community, for $118 Million. How acquisition of Slideshare is going to help LinkedIn boost its revenue growth and overcome the threat from companies such as BranchOut?