LinkedIn, a young start-up, was choosing between two monetization options in 2005. While LinkedIn has already outpaced its competitors, it only showed little revenue to its investors. The first option to monetize LinkedIn entailed the roll-out of eight new services for a monthly fee and keeping the existing features untouched. The second option involved a change in the basic function of LinkedIn. Members would need to pay a fee in order to contact each other without intermediaries. The latter ran a clear risk of alienating existing members, which would potentially abandon LinkedIn. Which of the two options should LinkedIn implement?
Mikolaj Jan Piskorski
Harvard Business Review (707406-PDF-ENG)
July 25, 2006
Case questions answered:
- Provide an overview of the company LinkedIn. Describe the business model!
- Why do online social networks exist? What value do they provide over existing substitutes?
- Who is more likely to sign up on the online network? Who is more likely to value access to these people?
- Which of the two options should Guericke and Hoffman implement?
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Case answers for LinkedIn (A)
1. Provide an overview of the company LinkedIn. Describe the business model!
LinkedIn is a web-based network that primarily intends to help business people contacting each other through trusted intermediaries in the network. While the company had grown significantly in terms of members, it has so far failed to develop a clear business model that allows monetizing this potential. With the intention to increase its revenue the company has therefore recently started to expand its service offering. As of mid-2005, the business model of LinkedIn consists of the following components (see also figure 1 in the appendix):
Core business: LinkedIn’s main intention is to connect professionals by using their existing networks of business relationships on an internet platform. Therefore, the core business of LinkedIn can be described as B(C2C) business model assuming that due to their individual character members are consumers. Even though users often represent businesses, the interaction on the platform takes place between individuals/consumers. Exactly this C2C component has so far complicated the monetization of the business.
Applications: In 2004 and 2005 LinkedIn has developed the following three applications in order to set the foundation for future revenue streams:
- LinkedIn Jobs offers companies the possibility to post a job advertisement for a fee. In this specific case, the interaction thus takes place between companies and individuals. The service, therefore, complements the core business by a B(B2C) model which is easier to monetize.
- LinkedIn for Groups allows members and firms to create groups to network with firms and members. The basic service is free. Groups can, however, pay a fee to have the group logo displayed in their members’ profiles. The monetary stream is thus based on a B(B2B) and a B(B2C) relationship assuming that the groups can be regarded as businesses. However, the network so far failed to extract revenue from this application as it offered the full service for free to prestigious organizations.
- LinkedIn Services enables members to search for different types of service providers. However, the service is still free of charge and it is unclear whether the “searcher”, B(C2B), or the service provider, B(B2C), would have to pay for it in case it would be monetized. Consequently, the clear business model of this application is…