Call it "social networking convergence." The more mature such services become as businesses, the more they "borrow" features from one another and start to look more alike. The latest example is LinkedIn (NYSE:LNKD), which just unveiled its "follow" service -- sound familiar, Twitter heads? LinkedInnies can now choose to be updated every time one or several of their chosen followees updates their LinkedIn-only blogs. The initial gang of bloggers is a group of 150 high-profile individuals, presumably all users of the site, who generously blog free of charge and whom the company terms "influencers." This is a clever move on LinkedIn's part; it costs nothing, it brings in free publicity, and it should help increase the "stickiness" of a site that by its nature is usually visited all too briefly.
Success in 140 characters or less
Thanks to the lightning-quick rise and sustained popularity of Twitter, the microblogging site's key feature of following a particular Tweeter has been followed by scores of other websites. After all, it's a fairly simple technological feat to accomplish and easy to put a unique twist on. Facebook (NASDAQ:FB), for one, clearly saw the value of this approach last year and introduced the ability for its users to "subscribe" to other users' posts. The key difference between that service and the site's traditional news-feed page updating is that users don't need to be friends with a person, service, or company to receive their updates.
The attraction of Twitter-like following is obvious: It keeps users glued to a site longer than they might usually be inclined. In the Internet world, this phenomenon can be monetized in several different ways, not least by encouraging visitors to click through more pages and ring the advertising cash register a few extra times.
That's very much needed for a site like LinkedIn, because it's not particularly sticky by nature. At heart, it's a place for people to keep their resumes updated and their business contacts current. Both activities take no more than a few minutes, at best. In certain cases, visitors hunting for jobs can peruse and apply for positions, and employers post and evaluate candidates for same. But this is typically a purposeful, closed activity that has the user logging off when done.
The "follow" feature is by no means the company's first attempt to extend those visits. For instance, on one of its pages it posts a daily e-newsletter called "LinkedIn Today," featuring general business-y content pulled from various corners of the Internet; users can get a digest of the digest, as it were, emailed to their inboxes once per week. The company also keeps itself well in the view of its users via its regular customized "network updates" emails, which feature the latest moves and developments in the careers of a member's contacts.
Profiting from the network
In spite of the professional, relatively well-heeled nature of LinkedIn's membership, the fleeting nature of such a site doesn't lend itself to easy revenue-making. This is probably why the company is expending such effort with projects like the newsletter and, now, the "follow" feature. Admirably, it's managed to recruit a lot of impressive names in the latter's pool of 150 "influencers." Both presidential candidates are represented ("Mitt Romney, right on your home page!"), as is Dr. Deepak Chopra and star chef Marcus Samuelsson. Oh, yeah, the site also features prominent businesspeople such as Intuit (NASDAQ:INTU) president/CEO Brad Smith (opining about startup management in his first post) and swashbuckling investor T. Boone Pickens. Members can comment freely on influencers' posts.
If any site can make users hang out for a while and produce revenue, it's probably LinkedIn. Born in co-founder Reid Hoffman's living room in the initial years of the new millennium, the site took only a few years to reach profitability. This is certainly not typical of Internet companies. It went public in early 2011 and hasn't looked back; the stock was wildly popular as soon as it hit the market, doubling from its $45 issue price almost immediately.In spite of a few dips here and there, it still hasn't fallen to earth, trading currently at just under $118.
What helps is that, of late, the company has usually posted a profit. Fiscal years 2010 and 2011 both ended in the black, as have the latest three quarters. More impressively, the top line has seen big year-over-year jumps. Q2's $228 million was 89% higher than that of the same quarter of 2011, a growth rate nearly matching the revenue doubles of full-year 2012 and 2011. The company's membership numbers have also grown robustly; as of Q2 the site had almost 174 million members, compared with 145 million at the end of last year.
This profitability contrasts favorably with other recent big-name Internet IPOs. Troubled social-game maker Zynga (NASDAQ:ZNGA), for example, has been plagued by defections from the executive suite and hasn't posted a profit since Q3 2011. To no one's shock or amazement, the company's shares have lost more than 75% of their value since their 2011 IPO. Groupon (NASDAQ:GRPN) operates a business with low barriers to entry, as shown by the determined entry of heavyweights like Amazon.com and Google to the deal-of-the-day business. Although the company posted a net profit in its most recent quarter, that wasn't much comfort to its investors; like Zynga, the shares have lost 70%-plus of their value since their IPO.
Luckily, LinkedIn has managed to establish itself as the business networking site on the Internet, and it boasts good management that's making the right moves to push the business forward. Users might not want to get constant updates from many of its freshly minted "influencers," but if they're thinking about putting money into the company, they should certainly keep an eye on the results that follow the service.
Eric Volkman owns shares of Facebook. The Motley Fool owns shares of Facebook and LinkedIn and has options on Facebook. Motley Fool newsletter services recommend Facebook and LinkedIn. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.