Get Used to LinkedIn's Sponsored Updates

Yesterday, LinkedIn (NYSE: LNKD  ) launched its new sponsored updates feature for marketers. The service allows companies to communicate with LinkedIn members they aren't connected to -- and LinkedIn hopes it's the next step in delivering more ad revenue.

Doesn't anyone use the term "ad" anymore?
LinkedIn's sponsored updates work in much the same way that Facebook's (NASDAQ: FB  ) or Twitter's promoted messages do. Customers -- in this case, businesses that have a company page on LinkedIn -- can now show featured content such as articles, videos, or pictures to specific sets of LinkedIn members that match the company's desired marketing demographic. In return, they pay LinkedIn on a cost per click or cost per thousand impressions.

In the first quarter of this year, the LinkedIn's Marketing Solutions division reported $74.8 million in revenue, which was up 56% from a year before. While there's no guarantee on what the company could add to that number with the new sponsored posts, it should be noted that some heavy hitters such as General Electric, Mercedes-Benz, The Wall Street Journal, Xerox and others have already signed on board.

One particular detail that could help the service gain traction is that when a marketer buys a sponsored update, it can be shown across desktops, tablets, and smartphones -- theoretically increasing the impact of the update. LinkedIn CEO Jeff Weiner talked about promoted updates -- when it was just a pilot program -- in an earnings call last quarter, saying that it was the company's first marketing revenue stream to be offered to scale. He also added that sponsored updates are "a much more efficient and predictable model going forward and scalable model."

Since Facebook launched its promoted posts feature, the company's seen more than 7.5 million promoted posts, many of which were for small businesses. But incorporating sponsored updates may not be an automatic slam-dunk for LinkedIn. Facebook was slow to make money with its promoted posts -- which brought in the majority of $5 million in non-gaming revenue in Q4 2012. In the first quarter of 2013, Facebook's quarterly payments revenue increased by 15% year over year but was a result of increased game revenue and less from promoted post revenue.

I still think LinkedIn's sponsored updates could be a good move for the company right now. The nature of LinkedIn's social network is for people to engage with others to further their career -- and that includes engaging with businesses. But investors should keep track of how well the promoted updates are received from both LinkedIn members and businesses. Online communities can be wary of new advertising intrusions, and if users feel like they're receiving a barrage of ads, then it could backfire on the company.

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