February 16, 2011

By John Shearer

LinkedIN as a niche social media tool

LinkedIn Updates are useful way to keep up with “the business persona”

Excerpt Below from CBS Business Network FEB 16 Page Link

Linkedin’s initial public offering document contains a startling admission that few seem to have noticed: Its own members mostly don’t use the site at all, or hardly ever. That’s a concern for a business that is reliant on advertising, as Linkedin is. The offering document’s “risks” section says:

… a substantial majority of our members do not visit our website on a monthly basis, and a substantial majority of our page views are generated by a minority of our members.

The company also warned that it cannot tell the difference between an inactive or deceased member and an active user. Yet Linkedin doubled its ad revenue through the first nine months of last year, from $23.8 million to $51.4 million following a similar doubling of the number of registered users, unique visitors, and page views. Ad revenue is 32 percent of Linkedin’s entire business.

This smells bad for advertisers. Consumers need to see messages more than once a month in order for ads to work. It is true that, generally, in many social networks a minority of users generate a majority of the activity. But think of how you use Facebook or Twitter. Facebook users are on there every day. Twitter users are too, assuming they don’t get bored after the first few days. With Linkedin, users often only show up when they need to update their resumes.

This isn’t a completely awful thing for Linkedin — being able to connect an advertiser to a consumer exactly at the moment someone is changing jobs can be a compelling offering for some clients. But it suggests that Linkedin’s ad revenue prospects will be limited to just that sort of scenario.

Ads not enough for digital media

More broadly, the Linkedin IPO gives us some more clues to how companies can create successful digital content — a problem that has so far eluded the media industry. Linkedin became profitable for the first time last year, but ad revenue is a minority of its business. The bulk of its money comes from subscriptions and “hiring solutions” for recruiters.

That’s similar to what we learned from Pandora’s IPO: That company doesn’t make a profit because it is so heavily dependent on advertising, unlike Sirius XM (SIRI), which is profitable because of its subscription base.

It’s anecdotal, but a pattern is emerging here, especially if you look at what we know about the finances of Twitter and the Demand Media content farm empire: Digital media business models that are dependent largely on ad revenue are not profitable. Companies need something in addition to ads to succeed.


Keeping up with friends Business Personas via LinkedIN updates

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