LinkedIn to Promote Its New Ad Tools

Late last month, LinkedIn, a social site for business professionals, filed its S‑1. In doing so, the company pulled back the curtain on the wizardly operations that generate revenue in the social media industry.  While LinkedIn appeals to a very different customer base than closely-​held social media giant Facebook, observers with an interest in the future of marketing can obtain  great insights by studying the new S‑1.

Top level metrics at LinkedIn reveal the following:

  • The company has 90 million members, half of which are located outside the U.S.
  • The company ended 2009 with $120 million in revenue and a modest loss of ($3.9 million). The company recorded $161 million in revenue for the first 9 months of 2010 with an associated net income of about $10 million.

These are the kinds of numbers likely to generate interest in an IPO. Gone are the days when investors stormed the gates to buy shares of companies who had a unique business concept and zero revenue or profit.

LinkedIn lists its lines of business as:

Hiring Solutions: Comprised 41% of 2010 revenue. Both companies and professional organizations pay for access to what operates essentially as an employment service with some extremely unique and helpful features. This business line jumped significantly between 2009 and 2010 as a percentage of total revenue.

Marketing Solutions: Comprised 32% of 2010 revenue. Both agencies and direct advertisers of all sizes place display and text ads on the site and are looking to target professionals.

Premium Subscriptions: The company targets individuals who will pay extra for additional access to information on the site. Between 20009 and 2010, this revenue stream dropped from 38% to 27% of total.

It’s also interesting to consider how LinkedIn generates its revenues. The S‑1 lists both field sales and online sales as channels. In the past couple of years, the percentage of sales from the field has surpassed online sales and now stands at 54%. LinkedIn executives believe that field sales will be increasingly important to the firm’s revenue growth.

The company notes that its primary goal is to make its members successful and productive – both individuals and corporations. At the same time, it intends to deliver an upscale and highly-​educated audience to advertisers.   A Wall Street Journal article indicates that LinkedIn “ is also adding features for its self-​serve platform for individual advertisers to allow for more targeting. Before, self-​serve advertisers could only target their display ads at members depending on company size, industry and gender.”

LinkedIn’s new efforts on its advertising platform show the importance of providing the right audience to marketers. Meanwhile it seems that LinkedIn executives are well aware of the dangers of depending on one revenue stream for long-​term growth, a hazard that social media companies face as pointed out by the Deloitte study I discussed last week.  For now, it’s too soon to call LinkedIn a pure social media site or an employment site. And for the early investors in this opportunity, that might be a good thing.  Until the value of this new ad format can be measured, operators need revenue streams that generate a return on investment.

[Sources: United States. Securities and Exchange Commission. LinkedIn: S‑1.  Edgar Online. 2011. Web. 6 Feb. 2011; Sherr, Ian. LinkedIn Pushes Ad Tools. Online​.wsj​.com. 26 Jan. 2011. Web. 6 Feb. 2011] 
Kathy Crosett
Kathy is the Vice President of Research for SalesFuel. She holds a Masters in Business Administration from the University of Vermont and oversees a staff of researchers, writers and content providers for SalesFuel. Previously, she was co-​owner of several small businesses in the health care services sector.