How LinkedIn Could Explode Revenue

How much would you pay to learn how much your coworkers make? How much would you pay for a product that reveals the salary of peers in your industry as well as the salary levels at your prospective employers? Perhaps the question is: How much wouldn't you pay?

Today, LinkedIn (Nasdaq: LNKD  ) , the world's largest professional network, is making bank selling its data-rich platform to recruiters and corporations. In the second quarter, its hiring solutions segment, which accounts for just over 50% of all the company's revenue, grew 107% to $122 million.  Its premium subscriptions segment grew at a slower pace, at 82%, to $44 million. Perhaps that's because, for individual members of LinkedIn -- that is to say, most professionals -- the premium-membership value proposition is underwhelming.

Unless you're actively searching for a job, why subscribe? At $19.99 a month for the base business subscription, a LinkedIn membership is more expensive but less fun than a membership with, say, Spotify, Hulu Plus, or beleaguered old Netflix (Nasdaq: NFLX  ) . You can't listen to old Biz Markie hits or rewatch the fourth season of Mad Men on LinkedIn, after all. You only get some greater search results and InMail capabilities.

Imagine LinkedIn Prime
But a product that helps professionals to manage their careers could be seriously compelling. Imagine a membership that gave you access to compensation and benefits information at your current employer, at prospective employers and across your industry. You'd be better equipped when negotiating for raises and promotions, and in making the crucial decision to stay or move on. You'd be pulling out your credit card right now.

LinkedIn, surely, is in no hurry to alienate its important corporate customers by leveling the information gap between employers and workers by providing this unprecedented workplace transparency. With its Silicon Valley roots, the company is likely far more familiar with an environment in which top executive talent is in demand and firms are in an arms race to acquire certain technical skill sets. In such an environment, LinkedIn's essentially business-to-business product offerings are highly valuable.

Outside of Silicon Valley and the nation's other choice zip codes, it's the other way 'round. Workers compete for employment, and there's the opportunity to sell these workers an edge. In this intensely competitive landscape, such a product might be purchased by nearly every career-savvy, over-one's-shoulder-looking, peer-envying, information-craving, angsty professional. You, and everyone you know who hasn't yet retired. Call it LinkedIn Prime. Of course, part of the cost of joining would be disclosing your own salary information. The people unwilling to do so probably aren't the target market for the product, anyway. It would be self-selecting.

A precedent in "Zestimates"
The precedence for LinkedIn to bear in mind may actually be Zillow (Nasdaq: Z  ) , which blew the lid off the real-estate information market with its "Zestimates" of house prices. Real estate agents and sites once closely guarded house price histories and sale information. Now these same agents are signing up for subscriptions with Zillow and selling their services in an enhanced and more transparent marketplace.

It's a win-win for house shoppers and sellers -- and an example that LinkedIn could follow.

Sizing up the market and potential revenue
How big, exactly, would the market for LinkedIn Prime be? Across the globe, there are almost 650 million professionals. More than 175 million currently have profiles on LinkedIn; two more sign up every second of every day. If just 10% of this base of 175 million subscribed to LinkedIn prime, paying $199 a year, LinkedIn would see revenue of $4 billion in the first year, or more than five times its revenue from the last 12 months. The total worth of the market, in the extra-unreal scenario in which every professional the world over subscribed, would be worth nearly $130 billion a year.  In this scenario, LinkedIn would overshadow even Google (Nasdaq: GOOG  ) , with its $43 billion LTM revenue.

Engagement, a crucial metric for LinkedIn, could shoot through the roof and out to space. LinkedIn is the 26th most visited website in the world today, with 10 billion unique page views in its second quarter. Offering LinkedIn Prime, that figure could easily double or triple as professionals click through highly relevant information across their networks.

Possible acquisitions and competitors
Glassdoor.com currently offers some of the capabilities I'm imagining with LinkedIn Prime, and so could be a good acquisition target if LinkedIn went in this direction. With a rich balance sheet, boasting over $600 million in cash and no debt, LinkedIn could make such an acquisition.

The competitive landscape doesn't offer up any immediate concerns. Of course, Facebook (NYSE: FB  ) is sometimes discussed as a possible threat to LinkedIn. The company has deep vats of user data, a wider user base, and has announced plans for a job board. Yet LinkedIn has greater brand equity; it's differentiated in the social networking space because it's perceived, at least, as skewing older than Facebook and Twitter. It's understood as a place for professionals. Facebook, in attempting to enter the employment and career management space, would be struggling to overcome the perception that it's just a site for posting embarrassing vacation photos, whereas LinkedIn would be capitalizing on an existing strength.

"There is always going to be a 'place to be professional' and a 'different place to be fun,'" as Forbes recently put it.

Back to reality
LinkedIn has no plans to acquire Glassdoor.com or launch LinkedIn Prime, and I'm just building castles in the sky. Still, it's an intriguing idea, worth a few minutes' dreaming. If you're reading this, Reid Hoffman, take notice. You could democratize the workforce, change the face of the working world, and make billions in the process.  

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Catherine Baab-Muguira has no interest in any of the companies mentioned here. The Motley Fool owns shares of Google, LinkedIn, Zillow, and Netflix. Motley Fool newsletter services have recommended buying shares of Netflix, LinkedIn, Zillow, Facebook, and Google. Motley Fool newsletter services have also recommended creating a bear put ladder position in Netflix. The Motley Fool has a disclosure policy.
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Read/Post Comments (3) | Recommend This Article (3)

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  • Report this Comment On September 19, 2012, at 12:18 PM, vv234 wrote:

    There a couple of issues with your statement:

    " If just 10% of this base of 175 million subscribed to LinkedIn prime, paying $199 a year, LinkedIn would see revenue of $4 billion in the first year".

    First of all, your numbers do not add up:

    10% * 175mm * $199 is not $4 billion, it's more like

    3.5 billion. The difference is a half billion with a B.

    Second, I do not know how you came up with that 10% number. Based on your description of the prime service, my guess (just like yours) is that not many professionals want to pay $200 for that information. I can find out some approximation from friends or just internet. So even 1% subscription rate would be a stretch, which would cut your $4billion revenue to less than $350 million, which is still very good but would not "overshadow Google" any time soon.

    So please backup your claim with some solid stats to make it believable. Otherwise it sounds like a stock hype.

  • Report this Comment On September 19, 2012, at 12:40 PM, TMFCatB wrote:

    Hey there, vv234. Thanks for weighing in. You are correct that I rounded up to $4 bil. It's not my intention to hype LNKD in any way. I'm just intrigued by the different directions the company could go in. You'll see I've said here that there's no reason to believe now the company will choose to launch the product I'm imagining, and that I called the overshadowing Google scenario extra unreal. It's my guess that there's as yet untapped demand for a service like this one, but right now, it's just castles in the sky. Not real, but fun and interesting to imagine.

    Here's an interesting article from ODesk that brushes against the idea of LinkedIn serving professionals as much as employers/recruiters but one that doesn't get into thoughts on product: https://www.odesk.com/blog/2012/08/25957/

  • Report this Comment On September 19, 2012, at 1:00 PM, TMFBane wrote:

    Nice article, Cat! I really enjoyed it.

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