LinkedIn is one of the most successful social networks. In this case study we dissect its business model and produce a LinkedIn business model canvas.
- 400 million Users (Jan 2016)
- 100 million MAU (Jan 2016)
- $3.2 billion revenue (annualised based on Q3 2015 figures)
So it is a pretty good company now that it has been around for over a decade. What is it’s business model and how do we capture than on a business model canvas? [click here to jump straight to the LinkedIn business model canvas]
LinkedIn has 3 customer segments. The most obvious one are all the internet users who go to the site and create a profile on it. Then there are the recruiters who are looking for talent, and finally advertisers who are looking to reach either a wealthy B2C audience or senior B2B decision makers.
Like most companies LinkedIn has distinct value propositions for each customer segments. For the normal internet user it offers them a showcase for their professional skills and talent. It allows them to network and build relationships. And it does all this for free. Users don’t pay anything for this. There are a whole range of additional smaller value points but these can be boiled down to – what does LinkedIn have to do to keep user engagement high and for users to increase the value of their profile and content. It’s a classic Freemium model.
For recruiters LinkedIn providers a superb tool for finding and evaluating candidates. Essentially it has 400 million CV’s in it’s database together with references and a wealth of information that is not normally available in a standard CV. Even better all the CV’s are structured and easily sortable and searchable. The value of this to recruiters is immense. No longer do they have to go out and build their own candidate lists from word of mouth and networking. Now they are able to identify and sell a much wider pool of talent.
Finally advertisers can use the same structured data to reach a highly targeted audience. If you want to target adverts that will only go to the CIO’s of pharmaceutical companies with more than 5,000 employees you can set up the advert and get it running in minutes without even having to buy a list of their contact details.
How does this work. LinkedIn like most social networks relies on network effects. The more people who are in the network the more valuable the network is to ALL participants. For the normal users it is a same side network effect. That means that the more normal users are on the site the more valuable the site is. The presence or lack of advertisers and recruiters doesn’t effect this value. This is all done on an automated self service basis. LinkedIn provides the platform, sets the rules and lets users get on with it.
On the other side the recruiters and advertisers are there for the cross-side network effects. They don’t benefit from there being additional recruiters or advertisers. They benefit from the normal users. The more users there are the more value LinkedIn provides to them. Again this is pretty much automated.
The main channels are the Website and the mobile apps. This is how people reach and engage with LinkedIn. In the early days there were sales teams going from city to city to encourage users to sign up but now the volume of users on the site and the number of links that users put back to their profiles means that it has a commanding SEO position. Where it does still have active sales is in going out and selling its talent solutions to large corporations and recruitment companies
So how how does LinkedIn make money? For normal users it makes some money by selling them additional services on a subscription basis. These are mainly targeted at salesmen and job hunters looking to get access to people they don’t know. Recruitment companies and corporations pay for the ability to post jobs, to search the database for talent and to establish a strong branded presence on the site for recruitment purposes. Advertisers pay on a pay per click or pay per view basis
The key activity for LinkedIn is all about platform development. Its essential value is in the number of monthly active users. So it needs a platform that increases the number of users over time, and which keeps them engaged and active on the site. Everything else is subservient to this as it needs to keep those numbers up, and to keep raising the value bar to stp other companies from disrupting the market or displacing it.
So the key resource is the platform. If you take the platform away LinkedIn has nothing. The networks and the connections that everything else is build on are nothing without the platform. In this case the staff, the branding, indeed many of the monetisation channels and value adds aren’t critical
The main groups of key partners for LinkedIn are the data centres (which it now has three) and all the ancillary infrastructure that keeps the platform online. Increasingly with LinkedIn Pulse and influencers it also acts as content distribution network (not a CDN) using the content of thousands of experts to engage users and keep them on the platform
The costs are mainly those associated with keeping the platform online and then R&D for platform development to find ways to increase its product value to its customer segments. Marketing and sales is a small but significant cost as it works to increase revenue streams.
LinkedIn Business Model Canvas
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