Why LinkedIn Is So Much More Than a Social Network

Admit it. You don't really think of LinkedIn (NYSE: LNKD) as a social network. How could you? You don't hold conversations there. Maybe you participate in a group, or recommend a friend, or perhaps weigh in on a question. None of those activities is nearly so conversational as a Facebook thread or a Twitter chat. LinkedIn would be the limp noodle of social networks if that's all the business was about. Fortunately, there's more. Much more.

So what is LinkedIn? A data play. A remarkably well-positioned data play that's attracting corporate cash in the same way a magnet attracts steel. Revenue doubled in the first quarter and rose 12% sequentially. Adjusted profits rose even more, rising to $0.15 a share from last year's $0.06. Corporate recruiters are finding more reasons to use the system. Take a look:

Source: LinkedIn corporate data.

Think of Hiring Solutions as a tool for digital recruiting. Companies like it so much that segment revenue has grown by triple digits in each of the past 12 quarters. Contrast that with Monster Worldwide (NYSE: MWW), which has managed to grow just 7% over the trailing 12 months.

Yet at a $400 million annual run rate, LinkedIn's Hiring Solutions takes in only a sliver of the billions spent each year on talent acquisition. Think about that. Management estimates the company's immediate addressable market at $27 billion, and $80 billion over the very long term, yet its most important business has yet to crack a half-billion. Talk about a growth opportunity.

Not surprisingly, Hiring Solutions is becoming an ever-bigger and more important part of the business. Roughly 54% of revenue now comes from recruiter clients, about10 percentage points over 2010 levels. Ad sales -- once more than a third of the business -- now account for just 26% of revenue.

Smart strategy. Facebook is already a world leader in display advertising, while newspaper classifieds promoter CareerBuilder -- which is jointly owned by Gannett (NYSE: GCI), McClatchy (NYSE: MNI), and Tribune -- still shows signs of being in fighting shape. Last month, Gannett cited the service in reporting a 7% improvement in digital revenues during the first quarter.

How LinkedIn makes hiring managers smarter
So what's the allure of Hiring Solutions? I think of it as Moneyballing the recruiting world, to steal a phrase from Fool co-founder David Gardner. LinkedIn offers intelligence not found elsewhere, information that can be used predictively to help hiring managers find candidates who possess not only the requisite experience, but also the skills, cultural beliefs, and background to become long-term contributors. Gut feel needn't enter the equation.

Consider these three ways hiring managers might use LinkedIn data:

1. Can you grow to be something else? LinkedIn is perfect for finding career switchers. Say you've worked at a bank for 20 years, but after seeing your childhood passion for great comic-book storytelling brought to screen in The Avengers, you begin writing tweets about the movie and your rekindled passion. Say you also post a few stories to a blog and post the updates to your LinkedIn profile. You take a class on comic-book art and list that, too. You keep posting till someone notices your passion and your deep experience with evaluating start-up businesses, since you helped manage loans to entrepreneurs while at the bank. Months later, you have a job offer to help a digital comic-book production house obtain venture-capital funding. The hiring manager doesn't mind your lack of industry expertise; he's already seen your passion in action, while your references speak volumes about your finance skills.

 2. Where you'll be most effective. Who connects to you on LinkedIn says a lot about whom you might be able to influence. What types of jobs do the people in your network have? What functions do they serve? A hiring manager with a functional need for a strong corporate writer might gravitate toward candidates with connections to highly recommended editors, on the theory that such connections speak to the writer's skill and influence. Hiring Solutions clients get access to this granular level of detail.

3. How you might fit in. Fit is important. Say you have all the skills to be the new ad manager for an insurance agency but you've spent years working for advertising agencies. You may be qualified yet not a fit for the job -- insurance might simply be too starchy for your free-form agency work style. Should the hiring manager take a risk? Your LinkedIn network says a lot. Does your network include pros from the insurance or related industries? Do you have recommendations from managers who applaud not just your creativity but also your ability to work with constraints and difficult clients? Hiring Solutions uses data to reduce the risk that new hires will fail to fit in.

Therein lies the real beauty of LinkedIn. Connections create data, which in turn creates intelligence, which in turn creates revenue and profit. This isn't a social-media play; it's a social-data play -- one of a handful of benefactors of a Big Data movement that's unlocking billions in value.