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September 26, 2012

LinkedIn Now Emerging as a David to Facebook’s Goliath

In the aftermath of Facebook’s monumental let down of an IPO, a silver lining is now emerging from the fog and frustration in the form of a social media trailblazer that has managed to quietly become an industry standard even amid an atmosphere of cynicism and acid reflux. That silver lining is LinkedIn, the professional social network now 160+ million strong, touting 2 sign-ups every second. In CEO Jeff Weiner’s own words, “LinkedIn is in the business of connecting talent with opportunity on a massive scale,” and while the company is already set to accrue a net profit of $70 million this year, or double what they generated last year, it has once again become refreshingly obvious that defined purpose is a key ingredient in the recipe of success.

Much of the latest buzz can be attributed to last month’s cover story from Forbes, in which George Anders, a leading contributor, reported a very interesting factoid based on calculations using ComScore’s Web-usage data and the public financial filings of LinkedIn and Facebook. He determined how much each of the two social media giants earn for every hour a user spends on their sites. The final verdict – for every $0.06 cents Facebook pulls in per user an hour, LinkedIn generates $1.30 or roughly 21 times as much. While Facebook users on average spend between 6 and 8 hours per month socially connected in the digital stratosphere, LinkedIn users conversely average a meager 18 minutes in comparison.

This statistic, as Anders points out, starkly exposes key differences in how the two rivals generate revenue. Facebook is largely confined to monetizing user interaction on a face-to-face basis through ad revenue, which currently accounts for around 85 percent of the company’s income. With their user base approaching a cool one billion, that is certainly nothing to gripe about, but recent estimates have found that the average Facebook socializer will click on just one out of every two thousand ads, though this may likely change once their Exchange program rolls out.

Under Weiner’s savvy direction, LinkedIn on the other hand, is in the midst of an HR revolution and has devised three main sources of revenue generation, with the now-prestigious Recruiter Account being the focal point of their business model. While subscriptions and advertising continue to play strong roles, the shining star has become their corporate accounts, in the form of ‘seats’, which can cost as much as $8,200 per year. Through these coveted accounts, major corporations like Adobe, which currently holds 70 recruiter seats, have access to the global network’s best and brightest, where they can refine searches, target potential candidates and initiate the hiring process within hours, or minutes even. While 70 seats can cost upwards of a half a million dollars per year, LinkedIn’s corporate account services have become so invaluable, they are ultimately saving companies like Adobe millions of dollars in the long term.

It seems this is not where their prowess ends, because according to a study from HubSpot, LinkedIn is also four times better than its two main competitors for generating business to business leads. Back in January, HubSpot reported that for 2011 LinkedIn held the highest visitor-to-lead conversion rate at 2.74 percent, well beyond Facebook and Twitter rates which were 0.39 and 0.67 percent respectively. While more recent tallies have shown LinkedIn’s lead generation rate to have fallen slightly from what it was last year, LinkedIn is still riding tall at the front of the line, which is attributed primarily to the company’s laser sharp focus on business related issues.

So while the tech sector has certainly taken a dive since May, things are still looking pretty sweet for LinkedIn even with their stock price tumbling around 12 percent since Facebook went public. Pumping an aggressive 33 percent of revenue into sales and marketing, the company is certainly primed for global growth on a gargantuan scale. And, with more than half of all U.S. corporations actively engaging social media in the hiring process and the majority of professional recruiters turning to LinkedIn as an indispensable asset, the company’s future certainly looks bright.

Article by K Cameron Lau.