In the early days of LinkedIn, Reid Hoffman did something he advises all startup founders to do; he went around and discussed the idea of LinkedIn with all the smart people in his network.
But when he shared the idea of LinkedIn in his network, 2/3 or more thought Reid was nuts.
And to be clear, Reid’s network included some of the most influential people in Silicon Valley at the time because before starting LinkedIn; Reid was the executive vice president of Paypal, meaning he is a member of what is popularly known as the Paypal mafia.
Most of Reid’s smart friends justified their conviction that LinkedIn wouldn’t work by giving the following line of reasoning,
“It’s a network product, it’s only valuable with a bunch of people in it. The first person has no value until they invite the second one. Second person, first person have no value in it they already know each other. When do you actually begin to deliver on your use case, which is 500K to a million people. And so you are never going to get to size. It’s never going to grow.”
While the criticism wasn’t invalid, Reid had a sense of how they would solve the problem of initial growth.
In his talk to Stanford Students on ‘How to be a Great Founder’, he said,
“What I knew was that the critics didn’t know was that I could think of a set of different ways by which people would say hey look I believe in the vision of this. I think it’s interesting, or I think a product like this should exist, or I’m willing to play around with it. And I can level those sets of interest to grow the network to get to enough size that you can begin to deliver on the value propositions which Linkedin had.”
In hindsight, Reid sense of how things could work out turned out to be right.
Within four months of launch, LinkedIn had over 50,000 users.
In a year since launch, the company had half a million users.
By 2006, three years into launch, the company had already achieved profitability.
In 2011, LinkedIn priced its IPO at a $45 share price, giving the company a valuation of $4.5 billion.
On the first day of trading, the stock rose by 84 percent, to $83.
In 2016, Microsoft acquired LinkedIn in an all-cash transaction valued at $26.2 billion, inclusive of LinkedIn’s net cash.
In 2018, Microsoft shared Linkedin made a revenue of $5.3 billion, more than double the $2.3 billion it made in 2017.
Unlike platforms like Facebook & Twitter which monetize their platforms primarily through digital advertising, digital advertising is only one of the revenue drivers for LinkedIn, with its talent solutions product generating the bulk of its revenue.
[ We will discuss in detail LinkedIn’s different revenue streams; why they matter and how much revenue they drive, for the ones we have publicly available data below ]
What makes LinkedIn different as a product is that it is what is popularly known as a multi-sided platform.
LinkedIn connects two distinct sets of entities looking to connect — on the one hand, there are job seekers and on the other, companies are looking to hire them.
And this is what enables LinkedIn to two take a hybrid approach to generating revenue by selling subscription products to companies and employees both as well as selling aggregated user attention via digital advertising.
Now, before we dive into the details of LinkedIn’s business model, let’s have a look at some of LinkedIn’s products stats to establish a better perspective about the product.
LinkedIn in Numbers
Unlike Facebook, LinkedIn does not report daily or monthly active users — only membership numbers are shared publicly; which could be because many LinkedIn members visit the site sporadically, either to update their resumes or check out job opportunities.
But even then, monthly active users and daily active users data would be good indicators of the number of people who use LinkedIn for more than just job search.
Since advertising is one of LinkedIn’s revenue generation streams, it goes without saying that LinkedIn can’t show ads to users who don’t visit LinkedIn regularly.
Sign up rate: LinkedIn claims professionals are signing up to join LinkedIn at a rate of more than two new members per second.
Language Availability: LinkedIn is available in more than 24 languages with more than 70% of members outside the US.
LinkedIn Economic Graph: More than 30M companies listed, more than 20M open jobs, 90K schools listed, 35 skills listed.
Audience: LinkedIn claims that 90M LinkedIn users are senior-level influencers, 63M are in decision-making positions, 40M are mass-affluent, 17M are opinion leaders, 10M are C-level execs, 6M are IT decision-makers & 3M are MBA grads.
Daily Time on Site: According to Alexa, the average daily time on LinkedIn was 10.16 minutes and the number of daily pageviews per visitor was 8.49 for the last 90 days at the time of writing this, both of which signify that LinkedIn engages active users quite well.
LinkedIn’s Funding: LinkedIn has raised a total of $154.8 Million in 7 funding rounds, which is commendable considering the company was bought by Microsoft for $26 Billion.
How LinkedIn Makes Money
LinkedIn’s revenue is driven by four different solutions:
1. Talents Solutions
2. Marketing Solutions
3. Sales Solutions
4. Premium Subscriptions
5. Learning & Development
What Talent Solutions does is that it enables employers to find potential employees and hire them seamlessly by providing features like advanced search tools, building candidate profiles, unlimited visibility to 3rd-degree network, and reaching out to top talent with InMail to name a few.
In Microsoft’s 2018 annual report, the tech giant shared that Talent Solutions is where the majority of LinkedIn’s revenue comes from but it didn’t mention how much percentage of the revenue was driven by Talent Solutions.
The last time this data was publicly shared was in LinkedIn’s 2015 annual report before LinkedIn delisted from the stock market post its acquisition and as per that report, Talent Solutions accounted for 59% of 2015 revenue.
Any kind of digital advertising business thrives on its unique value proposition to advertisers.
Google search ads are valuable because they are intent-driven, Amazon ads derive their value from the fact that Amazon has become the de facto shopping search engine, and Facebook is where advertisers go to target people at scale.
But even despite all of these channels being present, which in total account for more than 70% of the online media spends, LinkedIn’s ad product is the first choice for many B2B advertisers and it stands out among a sea of digital advertising options because of two factors: LinkedIn’s audience is majorly working professionals and LinkedIn’s ad product allows specific user targeting using targeting options like Job Titles, Seniority, Company Name, Industry, Company Size, Skill etc.
As per LinkedIn’s 2015 annual report, LinkedIn advertising accounted for 19% of the total revenue, but there are reports that LinkedIn’s advertising revenue segment is poised for more growth
Let’s suppose you are a business development person working at a marketing agency and your job role is to get brands to work with your firm.
To achieve your objective, you will reach out to digital marketing managers working on the brand side and pitch them your services.
While the aforementioned is just one use case, LinkedIn’s sales navigator, a software-as-a-service subscription offering, can come in handy to sales and business development professionals trying to find quality leads via LinkedIn, by equipping them with features like Advanced Lead and Company Search, Lead Recommendations & CRM Integration.
Since Sales Navigator was rolled out in 2015, the last year where LinkedIn shared the product revenue breakdown before getting acquired, it’s difficult to say how much money comes from Sales Solutions now.
Targeted to LinkedIn users and small & medium-sized organizations, Premium subscriptions consists of four different subscription options:
If you’re using LinkedIn to find a job, the career subscription options comes with a bunch of useful features like direct messaging to recruiters, being able to see who’s viewed your profile, standing out among job applicants as a featured applicant, being able to compare how you stack up against other Applicants using Application Insights & access to online video courses from LinkedIn’s learning platform.
In 2015, Premium subscriptions accounted for 18% of LinkedIn’s revenue.
Learning & Development
LinkedIn Learning is powered by Lynda.com, an e-learning platform which LinkedIn acquired for $1.5 billion in 2015. Instead of targeting individuals, LinkedIn learning is targeted at organizations looking to upskill their employees.
In its 2015 annual report, LinkedIn had reported that Learning and development accounted for 4% of its total revenue.
Thank you for taking the time to read the entire article.
If you liked it, you might also like our article covering Netflix’s Business Model.