LinkedIn is one of the most successful social networks. In this case study, we dissect its business model and produce the LinkedIn business model canvas.
Some figures:
- 400 million Users (Jan 2016)
- 100 million MAU (Jan 2016)
- $3.2 billion revenue (annualised based on Q3 2015 figures)
LinkedIn is pretty good company now that it has been around for over a decade, and has now been bought by Microsoft . Now we ask how is the LinkedIn business model composed and how do we capture it on a business model canvas?
The LinkedIn Business Model Canvas
LinkedIn Customer Segments
The LinkedIn business model has 3 customer segments. The most obvious one is all the internet users who go to the site and create a profile on it. These are business people who use it to connect and interact with other business professionals.
Then there are the recruiters who are looking for talent, and finally, advertisers who are looking to reach either a wealthy B2C audience or senior B2B decision-makers.
LinkedIn Value Proposition
Next on the LinkedIn business model is the value proposition. Like most companies, it has distinct value propositions for each customer segment.
Business Users
For the normal internet user, it offers them a showcase for their professional skills and talent. It allows them to network and to build relationships.
LinkedIn does all this for free. Users don’t pay anything for this. There is a whole range of additional smaller value points but these can be boiled down to – what does LinkedIn have to do to keep user engagement high and for users to increase the value of their profile and content. It’s a classic Freemium model.
Recruiters
For recruiters LinkedIn providers a superb tool for finding and evaluating candidates. Essentially it has 400 million CV’s in its database together with references and a wealth of information that is not normally available in a standard CV. Even better all the CV’s are structured and easily sortable and searchable.
The value of this to recruiters is immense. No longer do they have to go out and build their own candidate lists from word of mouth and networking. Now they are able to identify and sell a much wider pool of talent.
This provision of free CVs to recruiters is at the heart of the monetisation of the LinkedIn business model
Advertisers
Finally, advertisers can use the same structured data to reach a highly targeted audience. If you want to target adverts that will only go to the CIO’s of pharmaceutical companies with more than 5,000 employees you can set up the advert and get it running in minutes without even having to buy a list of their contact details
LinkedIn Business Model Customer Relationships
How do customer relationships work on the LinkedIn business model? Like most social networks, LinkedIn relies on network effects. The more people who are in the network the more valuable the network is to ALL participants. For normal users, it is a same-side network effect. That means that the more normal users are on the site the more valuable the site is. The presence or lack of advertisers and recruiters doesn’t affect this value. This is all done on an automated self-service basis. LinkedIn provides the platform, sets the rules and lets users get on with it.
On the other side, the recruiters and advertisers are there for the cross-side network effects. They don’t benefit from there being additional recruiters or advertisers. They benefit from normal users. The more users there is the more value LinkedIn provides to them. Again this is pretty much automated.
LinkedIn Marketing & Distribution Channels
The main channels are the Website and LinkedIn’s mobile apps. This is how people reach and engage with LinkedIn. In the early days, there were sales teams going from city to city to encourage users to sign up but now the volume of users on the site and the number of links that users put back to their profiles means that it has a commanding SEO position. Where it does still have active sales is in going out and selling its talent solutions to large corporations and recruitment companies.
LinkedIn Monetisation
So how does LinkedIn make money? For normal users, it makes some money by selling them additional services on a subscription basis. These are mainly targeted at salesmen and job hunters looking to get access to people they don’t know.
Recruitment companies and corporations pay for the ability to post jobs, to search the database for talent and to establish a strong branded presence on the site for recruitment purposes. Advertisers pay on a pay per click or pay per view basis.
LinkedIn Key Activities
The key activity for LinkedIn is all about platform development. Its essential value is in the number of monthly active users. So it needs a platform that increases the number of users over time, and which keeps them engaged and active on the site.
Everything else is subservient to this as it needs to keep those numbers up and to keep raising the value bar to stop other companies from disrupting the market or displacing it.
LinkedIn Key Resource
So the key resource for the LinkedIn business model is the platform. If you take the platform away LinkedIn has nothing. The networks and the connections that everything else is built on are nothing without the platform.
In this case, the staff, the branding, indeed many of the monetisation channels and value adds aren’t critical.
LinkedIn Business Model Key Partners
The main groups of key partners for LinkedIn are the data centres (which it now has three) and all the ancillary infrastructure that keeps the platform online.
Increasingly with LinkedIn Pulse and influencers it also acts as a content distribution network (not a CDN) using the content of thousands of experts to engage users and keep them on the platform.
LinkedIn Costs
The costs are mainly those associated with keeping the platform online and then R&D for platform development to find ways to increase its product value to its customer segments. Marketing and sales is a small but significant cost as it works to increase revenue streams.
LinkedIn Business Model Canvas
This is the LinkedIn business model canvas. In this case, we’ve used Alexander Osterwalder’s original template and the descriptive text is a bit small. Feel free to download and reuse the image.
