LinkedIn is an online professional networking site that allows individuals to post resumes and connect with others.
Summary:
LinkedIn is an online professional networking site that allows individuals to post resumes and connect with others. Founded in 2003 by several veteran Silicon Valley entrepreneurs, the original insight that led to the company’s founding was the lack of an online community for vocational relationships and career advancement. Structured as a Freemium model, the core functionality of posting job experiences and linking with other people in the workforce is free to anyone willing to sign up. More advanced functionality costs money and focus on recruiting, getting hired, or other fundamental needs. Today the platform has over 600 million users in in over 200 countries. In 2016, LinkedIn was purchased by Microsoft for $26 Billion making it one of the largest tech acquisitions to date.
Business Model:
LinkedIn operates as a very cleverly designed two sided marketplace. Using its free professional networking service to attract users, it then connects companies to potential employees, and employees to new employers. On both sides of the platform, they make money.
Company Side
About two thirds of LinkedIn’s revenue comes from Talent Solutions, which it sells as an enterprise software to companies for recruiting. They offer several tools that enable in house recruiters to quickly identify possible candidates, and send targeted job postings to individuals who match selection requirements. They also offer paid marketing solutions for companies to build an organizational brand on the site and send targeted advertising.
Figure 1: Talent Solutions Offering
User Side
Users are able to create connections with other individuals and track the careers of peers for free. If an individual or member of an organization has a specific need, they can pay for a subscription service that unlocks extra features.
Figure 2: Premium Subscription Types
Through its business model, LinkedIn enables more liquidity within the job market and through targeted recruitment / hiring tools, allows for faster company growth. The value this service creates through the capture of user and company data is undeniable.
Data Assets:
The data that LinkedIn captures from its users allows it to create targeted job advertising and automatic filtering for recruitment candidates. The more users on the site, the more employers are attracted to use it, creating exemplary direct network effects. Advanced algorithms and analytics run on the vast amount of information that LinkedIn has on employee backgrounds and company hiring practices, has given it a substantial asset that it continues to leverage. Similar to other companies, LinkedIn uses this data lake to make smart recommendations, pair entities on both sides of the marketplace, create targeted advertising, and more recently offer customized learning resources.
The management of this dataset is critical to LinkedIn’s business model. Using the traditional freemium strategy, they have amassed a huge user base that has become a valuable asset for their customers. The company had to invest vast amounts of capital into marketing to become the designated online professional network for people to chose and into infrastructure to manage the high demands of such a platform. Without these data however, LinkedIn would have no ability to provide additional insights or suggestions to companies looking to hire its users. It’s precisely because of the data it has centralized, that it can monetize its products for talent acquisition that makes up such a disproportionate amount of the company’s revenue.
Conclusion:
In conclusion, LinkedIn is a great example of a data driven business. Using a traditional two sided marketplace approach, it has gathered a massive dataset on the professional background of the global workforce and the hiring practices of the companies that they work for. These data have generated substantial value and become an asset the the company maintains, protects and leverages through its business model.
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