It has been 12.5 years since LinkedIn was founded on May, 2003. Establishing itself as the largest professional network during this period, the company has achieved impressive milestones, such as a market capitalization of more than $30 billion (as of Dec 4th, 2015) and a user base in over 200 countries of approximately 396 million members (as of 3Q15 release to the market). LinkedIn is a clear winner in terms of aligning its business model to its operating model. The company creates value for its members, both individuals and companies, while managing to monetize properly on the value created.
LinkedIn creates value to individual members and companies by “connecting them to the people, knowledge and opportunities that matter most to them professionally”. In the professional network, members publish their professional background, interests, capabilities and future goals and, in exchange, LinkedIn provides members with access to products, tools, applications, contacts and opportunities for them to manage career interests. There is a win-win situation: to individual members, by connecting them with career interests, and, to companies, by connecting them to the desired talents. Each new individual who publishes his professional details adds value to the whole system, strengthening LinkedIn leverage of network effects.
As a strategic decision of its operating model, LinkedIn chose to operate in a freemium model: it offers a broad range of services to members without charging any price and, for those who want additional tools and accesses, it offers paid solutions. The freemium model strengthens network effects by significantly lowering the commitment a new user has to make to become part of the professional network.
LinkedIn generates revenues from three products lines: Talent Solutions, Marketing Solutions and Premium subscriptions. All the product lines are sold through two distinct distribution channels: an offline sales force targeting companies of varied sizes and industries, and an online self-serve channel that enables individuals and/or companies to purchase premium subscriptions. LinkedIn also has an established technology infrastructure hosted on a network located in multiple third-party facilities, leasing data centers services from other companies. It might be the case that, in the near future, LinkedIn will have to own its data center capabilities as its member community keeps growing (similar to what Facebook has done).
Below is a short summary of the three main product segments that the company uses to monetize over the value created to its members:
- Talent Solutions: products aimed to offer the best way for companies to find the right human capital that they are searching for. Products include LinkedIn Recruiter, which enables recruiters to make advanced searches and contact any individual member in the network, and Job Slots, which enables a company to post a job position. Talent Solutions represents the main revenue stream for the company: 64% in the last published quarter.
- Marketing Solutions: products aimed to enable advertisers to reach the member base. Products include Sponsored Updates, which enable advertisers to share content marketing messages to a target audience, and LinkedIn Ads, which enable advertisers to target ads to specific members based on the profile information. Marketing Solutions represents approximately 18% of the company’s revenues.
- Premium subscriptions: targets individuals and companies interested in premium service bundles to manage their professional identity, grow their networks and connect with talent. The company offers different bundles of premium subscriptions with prices varying from [ ]. Additional product features include access to unlimited InMail messages, transparency on who’s viewed your profile, and the Sales Navigator solution, which enables sales professionals to identify and manage sales leads. Similar to Marketing Solutions, Premium subscriptions represent approximately 18% of the company’s revenues.
LinkedIn also keeps investing to innovate its operating model to complement service offerings. It has recently made two important acquisitions: $175 M for Bizo in 2014, a company that offers targeting and analytics to improve display ads, and $1.5 BN for Lynda.com in 2015, an online learning platform that offers courses in areas such as Photoshop and basic HTML. The goals of LinkedIn with the two acquisitions were, respectively, to incorporate Bizo’s B2B advertising technology into its Marketing Solutions and to provide more access to education and skills acquisition to its members, helping companies to find proper human capital.
LinkedIn has leveraged the value it creates for its community and aligned its operating model to (i) generate enough barriers of entry for other companies, (ii) create significant network effects, and (iii) monetize and innovate in its product offerings. Therefore, the strong alignment between its business model and operating model resulted in a company valued at more than $30 BN and presence worldwide.
2014 Annual Report
3Q15 Quarterly Report
Business Update November 2011