Facebook (NASDAQ:FB) and LinkedIn (NYSE:LNKD.DL) reside in opposite corners of the social networking world -- the former is used for personal use, while the latter is used to connect to professional contacts.
But that could all change soon with Facebook at Work, a new site that will employ Facebook's News Feeds and Groups for professional use. According to the Financial Times, the new site will also add shared document collaboration. That expansion could mean trouble for LinkedIn, which has 332 million registered members but only 90 million monthly active users, or MAUs. That pales in comparison to Facebook's 1.35 billion MAUs.
Why Facebook wants to evolve into a professional network
Facebook at Work could resolve the awkward issue of "friending" bosses with two separate sites. Facebook at Work might also win over more professional users who prefer using LinkedIn over Facebook. This would increase the time existing users spend on its site, while winning over more non-Facebook users.
Facebook needs new users, because the impressive past growth at its main site is slowly leveling off. Last quarter, Facebook's monthly active users and daily active users respectively rose 14% and 19% year over year. That's a notable decline from the prior-year quarter, when MAUs climbed 18% and DAUs rose 25%.
Facebook at Work would help the company gain new users or convince existing users to set up professional profiles. Facebook also hosts over 30 million small business pages, which might embrace Facebook at Work to connect to other businesses and hire employees. Facebook could possibly use its Places and Check In features for location-based job searches.
Facebook at Work could also be a way back into China, where Facebook has been banned since 2009 following the riots in Xinjiang. Since LinkedIn is considered a professional network and self-censors its content, it remains active in China. If Facebook at Work is also willing to censor sensitive political content, it could return to tap into the country's 632 million Internet users.
Facebook could clone LinkedIn's strategy
LinkedIn has proven that users are willing to pay for premium job search features. LinkedIn's business is separated into three segments: talent solutions (helping employers find employees), marketing solutions (display advertising), and premium subscriptions (which unlock additional features). Last quarter, LinkedIn's talent and marketing revenue both climbed 45% year over year, while premium revenue rose 43%.
Facebook already knows how to generate revenue from display ads. But if employers pay to find candidates, and prospective employees pay for premium job search features, Facebook at Work could be easily monetized. LinkedIn's third-quarter revenue of $568 million values each of the site's 90 million MAUs at $6.31. Facebook's third-quarter revenue of $3.2 billion values each of its 1.35 billion MAUs at $2.37. Therefore, if Facebook at Work clones LinkedIn's business model, it could generate considerably more revenue per active user.
However, Facebook could also undercut LinkedIn's premium plans by offering the same features for free, stealing market share while only relying on display ad revenue. LinkedIn's bottom line -- which has remained in the red all year -- could not compete against a free services model.
Cloud collaboration features could be game changing
Cloud-based collaboration features on documents would elevate Facebook above LinkedIn and put it in direct competition with Google (NASDAQ:GOOG) (NASDAQ:GOOGL) Drive and Microsoft (NASDAQ:MSFT) Office 365.
Cloud office software still only accounts for 8% of all office software users, according to Gartner, but that share is climbing thanks to rising adoption rates among small and medium-sized businesses. Adding cloud-based document collaboration to Facebook at Work would also be a logical step toward launching a full-blown mobile operating system, a long-term goal the company has strongly hinted at with Facebook at Home and unbundled mobile apps.
LinkedIn is also encouraging the use of its unbundled apps (Connected, Pulse, Recruiter) and expanding into business-to-business marketing via its $175 million acquisition of Bizo. But LinkedIn has no first-party document collaboration features, and its messaging platform is arguably inferior to Facebook's.
The road ahead
Facebook at Work could arrive in a few months, and it has a real chance at disrupting LinkedIn's business.
In the past, LinkedIn faced no serious competitors -- it simply steamrolled over Monster Worldwide (NYSE:MWW) and became a viable digital replacement for traditional resumes and job ads. But Facebook has the users, the advertisers, and technology (News Feed, Groups, location services, and APIs) to loosen LinkedIn's iron grip on the professional social networking market.
Leo Sun owns shares of Facebook. The Motley Fool recommends Facebook, Google (A shares), Google (C shares), and LinkedIn. The Motley Fool owns shares of Facebook, Google (A shares), Google (C shares), LinkedIn, and Microsoft. Try any of our Foolish newsletter services free for 30 days. We Fools may not 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.