What LinkedIn is doing right

LinkedIn posted some impressive financial results for the second quarter which just exceeeded analyst expectations. Following the recent disappointment by Facebook and Zynga, LinkedIn was being closely watched to see if it would be more of the same or they would buck the trend in the internet space.What is LinkedIn doing right?

Steady growth continues

LinkedIn users now stand at 175 million users, up from 161 Million in May. User engagement across the platform is at all time record according to the transcript from the conference call with Jeff Weiner the CEO. While Facebook also continues to grow there is indication that it is now slowing down. LinkedIn’s recent changes to the site and continued innovation with individual and corporate products should see even more professionals take up their products and add to the user base.

Focussed and Professional

Some might refer to LinkedIn as the Facebook for business but it goes beyond that. LinkedIn is a dedicated platform where serious business professionals can connect and engage. Updates are relevant  and businesses keen to grow their brands and franchise can generate good revenue. Thus while LinkedIn has far few numbers than a Facebook it has a much better visitor to lead conversion ratio.

There is little chance that LinkedIn will ever move into the personal networking space. On the other hand Facebook intends to mix business with pleasure which some users will not buy into as they seek to the two apart as much as possible. These mixed signals can confuse users as they seek to define their own strategy on how to effectively use the site.  LinkedIn continues to improve the experience for professionals and companies alike using its services.

Healthy spread of revenues

LinkedIn gets its revenues from Hiring Solutions, Marketing products and Premium subscriptions. In terms of reliance on Advertisements LinkedIn gets 28% of its revenue from these. On the other hand a Facebook is getting as much as 85% from Advertisements. LinkedIn’s spread of revenue across its products is much healthier and more sustainable. Facebook has too much reliance on Ad revenue. The premium revenue at LinkedIn grew by an impressive 82% to reach US$44 million. So LinkedIn users while being much fewer in number are more than happy to pay for the service. As Facebook considers charging users for its premium content the big question is: Will individual users be prepared to pay for features on Facebook? I wouldn’t!

Number of users to revenue

Looking at LinkedIn user base one can see that a good number are actively contributing to the bottom line. Some users on LinkedIn are prepared to pay for premium features and actually doing so. This question still needs to be answered by Facebook. Just a possibility at this stage? How can Facebook get a good portion of its billion users to actively contribute to its profitability? This would require a change in mindset. Also remember that Facebook has taken pride in saying that Facebook will always be free. How times change! One must bear in mind that LinkedIn users currently spend far less time on the site than Facebook users. We know already that as many as 83 million accounts on Facebook are dormant or duplicates. This number is much higher than previous thought or estimated.

Setting the pace

From one quarter to another LinkedIn has been setting the pace. It is provide analysts with estimates and guidance for the coming quarters while Facebook has refused to give any guidance, something which will certainly not endear it to analysts. It only makes their job hard on trying to decipher whether it is a good investment or not.  It does not have troubling synergies like Facebook with Zynga. Unfortunately for Facebook and Zynga their fortunes seem to move in tandem as their business models are so intertwined. LinkedIn does not have such a company at this time that affects its outlook in such a way. One might be tempted to think of Monster but they are really not in the same league.

To hear Bruce Mubayiwa talk about the Ins and Outs of LinkedIn, join him at the Business Schools Expo at the Sandton Convention Centre on Tuesday, 7 August 2012. Register online at SABSA for free or pay R100 at the door.

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