Advertising revenue on LinkedIn and other ‘meet’ platforms

Earlier this month, the professional networking site LinkedIn, released an impressive earnings report for the fourth quarter of 2014. Revenue for the quarter was $643 million, an increase of 44% from the fourth quarter of 2013. It wasn’t just the top line numbers that impressed, all segments of the business grew at a healthy pace.

• Talent Solutions — Revenue earned from recruiters who pay a fee to access the database of professionals on the site. This accounts for 57% of LinkedIn’s revenue.
• Marketing Solutions — Revenue earned from the advertising that is on the site. This accounts for 24% of total revenue.
• Premium Subscriptions — Revenue earned from premium subscriptions. Accounts for 19% of total revenue.

This post is going to focus on the second revenue stream i.e. Marketing Solutions. But first, a little background information is required. In my social networks class, Profession Piskorski divided social networks into either ‘friend’ platforms or ‘meet’ platforms. Friend platforms such as FaceBook help users develop closer relationships with their existing network. Meet platforms such as LinkedIn or dating sites help users broaden their networks by introducing them to new people.

From a business model perspective, there is one key difference between the two. If a friend platform is successful, you spend more time on it i.e if everyone you know is constantly on FaceBook updating their status or uploading pictures or messaging, the more interesting content there is for you to see hence and the more likely you are to visit the site. On ‘meet’ platforms, the more successful the platform is, the less likely you are to visit. For example, if you are successful in meeting someone on a dating site, you stop using the site. For this reason, ‘meet’ platforms typically derive their revenue from subscriptions whereas ‘friend’ platforms tend to rely on advertising.

This is a challenge for sites such as LinkedIn that would like to get additional revenue from advertising. However, LinkedIn was initially seen as a place that you went only when you were looking for a job. Thus even though many users created profiles on the site, few visited regularly. This brilliant article details how LinkedIn addressed this issue by essentially turning itself into from a social network into a media platform. The entire article is worth reading but the key passage is the one below.

To get things started, the company launched LinkedIn Today in 2011 as a way of enticing professionals to log in every morning to catch up on industry news. The following year it signed up “influential thought leaders” to provide occasional commentary. Last year, the company bought Pulse, an app that focuses purely on content, and which the company would like professionals to check for a quick update on news relevant to them. And now, it runs a content behemoth that drives the internet’s manicured hordes to business publications around the web.

The strategy certainly seems to have paid off with advertising accounting for 24% of revenue in the most recent quarter as opposed to 22% a year ago. However, the company is not resting on its laurels. It plans to scale its B2B advertising revenue to one billion dollars by 2017 having acquired B2B marketing platform Bizio for 175 million USD last year. The company also recently launched its own ad network to allow companies to identify which LinkedIn user is visiting their site. If successful, this strategy could act as a template for other ‘meet’ platforms to make a play for a share of the lucrative online advertising pie.