LinkedIn: Digital winner transforming the recruiting industry

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The business

Founded in the early 2000s, LinkedIn is a social network for professionals with one mission: connect the world’s professionals to make them more productive and successful. In order to accomplish this mission, LinkedIn has developed three primary product lines that have allowed it to be a high performing company throughout the years:

  • LinkedIn Talent Solutions: a suite of products designed to help enterprises and hiring organizations find and hire the right talent at the appropriate time
  • LinkedIn Marketing Solutions: a suite of products designed for marketers and advertisers to reach users with relevant products and services
  • LinkedIn Sales Solutions: products that allow sales people to more effectively and efficiently prospect for new customers using “social selling” techniques

Network effects and digital transformation

LinkedIn has transformed the traditional recruiting and job search industry in a number of ways. Initially, LinkedIn simply took low tech processes and made them possible to conduct online (e.g., printing and distributing resumes, head hunting on a small scale, etc.), but this has quickly evolved to extend beyond recruiting and early versions of the platform. After building one of the first online professional networks, LinkedIn quickly recognized the benefits of network effects in its business. For instance, more users on the platform make LinkedIn a more valuable database to hiring companies, and increase the chances those companies will find suitable candidates in a timely manner. As more users join, LinkedIn can continuously mine and process user data to help proactively identify promising candidates to hiring companies in an automated way. In addition, the value marketers and advertisers derive from LinkedIn is highly correlated with the number of users on the platform, as well as the amount of information those users make available (e.g., age, gender, geographic location, work experience, etc.). These network effects have created a competitive moat around LinkedIn, and allowed it to build upon its own success.

The next evolution of LinkedIn’s digital transformation of traditional recruiting and job search is what CEO Jeff Weiner calls “the economic graph.” The economic graph would be a digital representation of every economic opportunity in the world, all skills required to get those jobs, as well as detailed profiles and data on all companies, universities, and the 3 billion professional workers globally. LinkedIn acquired Lynda.com, an online education company, as a move in this direction.

I believe LinkedIn is a clear digital winner because it has surpassed talent management companies and traditional recruiting firms in terms of a scalable business model, and has also successfully expanded into other ways of creating value for users and enterprise customers.

Value creation

For users, LinkedIn creates a way to build a professional network and maintain professional relationships throughout a long career. At the same time, LinkedIn provides an avenue through which users can display and communicate their experience, skills, achievements, and aspirations. Lastly, LinkedIn is a way for users to explore job opportunities and be contacted by recruiters.

For companies, LinkedIn products can be used to hire, market, and sell:

  • Hire: LinkedIn helps large enterprises and SMBs alike to identify and reach out to promising candidates
  • Market: LinkedIn helps marketers and advertisers target potential consumers with great accuracy, given the amount of relevant demographic and socioeconomic data that is available on the platform
  • Sell: LinkedIn Sales Solutions is more of a nascent product, but it also mines the user database to help sales people find potential customers with relevant job titles and company sizes

Value capture

Users can pay anywhere between $29.99-$59.99/month for a Premium subscription to LinkedIn. This allows users to access more advanced platform features (e.g., ability to message any user on LinkedIn or see all users who have viewed your profile). However, the majority of LinkedIn’s 380M users use only the free features, and Premium subscriptions account for a very small portion of LinkedIn’s revenue.

The vast majority of LinkedIn’s revenue comes from companies who pay for Talent Solutions, Marketing Solutions, and/or Sales Solutions products. Products such as Recruiter, Job Slots, Lead Accelerator, Sponsored Updates, and Sales Navigator help companies hire, market, and sell through LinkedIn.

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Student comments on LinkedIn: Digital winner transforming the recruiting industry

  1. Very interesting post, Sherry!

    Following the theory of disruptive innovation, I wonder if LinkedIn will one day be vulnerable to an upstart company who goes after the lower value segment of LinkedIn’s customers (presumably those who spend the least amount of money on LinkedIn’s products). I imagine these would be smaller companies who prefer a lower price point for recruiting services and don’t have recurring recruiting needs. How will LinkedIn defends itself against such an attack?

  2. Great insights, Sherry.

    Interesting to see how LinkedIn has leveled the playing field to actively recruit candidate from highly sought-after universities. When I was in college (before LinkedIn became the Norm), the University and University organizations served as gate-keepers of student talent, often offering student resume books in exchange for financial sponsorship or other similar criteria. On the student front, if he/she was not contacted by companies through the recruiting pool, he/she would often face the grueling process of researching and networking to find suitable opportunities.

    Even companies that boast powerful talent and endless capital, who traditionally do go through formal University channels to recruit students, are using LinkedIn to supplement their search. Before recruiting season started at HBS, I saw that a number of recruiters who already come to campus viewing my LinkedIn profile. Even the smaller guys (interesting firms I have never heard of) pop on my radar under “Profile views” even if I don’t get a direct message. In the latter case, they may or may not be taking advantage of the free version of the platform to scope talent without paying for it. As such, i’d be curious to see if LinkedIN might offer more attractive features for start-ups or smaller companies using the platform to recruit, as LinkedIn is missing out on opportunities to cash in and capture value from a number of users/companies using the platform in that way.

    While some users allow public users to see their entire profile without being connected, others limit what is visible until a connection is established. I wonder if LinkedIN might experiment with witholding more of a user’s profile from being visible as a way to encourage payment of services.

    Users and companies alike have grown increasingly dependent on LinkedIN–I’ve even heard professional say they negatively view Milennials who do not have a LinkedIn preference. And with a massive number of profiled on the database, the company surely has a ‘lock’ and significant barrier to entry to up-and-coming imitators on the platform.

  3. Very interesting post Sherry, thanks for the read 🙂

    I wonder what your opinion is on LinkedIn’s premium subscription model?
    As you emphasize the value of their user base and the network effects users benefit from, I wonder if inhibiting the ability for the majority of users to do key things (like message any user on LinkedIn or see all users who have viewed your profile) actually detract from these same network effects. As you mention, premium subscriptions make up a small % of their revenue, and I wonder if they actually create more complexity and bloat LinkedIn’s overall offering by having to keep it separate and supported. As discussed, they have a number of ways to monetize their user base and data, and the premium subscription seems to not fit there or be necessary.

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