Even LinkedIn Needs to Innovate! Jim Gilchrist B.E.S CLO’s

Posted on 14/06/2012 by maggie No Comments

Jim Gilchrist of Careers Advancement in Canada who regularly shares his articles with us at CLO, and indeed who found us on linked in, poses a question:

Has linked in peaked? Here Jim shares his thoughts on using linked in as a recruitment tool – a question that all of us out there looking for talent are pondering. Only yesterday, in an online learning event the question of using LinkedIn as a recruitment tool was on people’s mind.

Is LinkedIn close to peaking?

LinkedIn has been a wonderful tool that has helped me introduce myself and connect to other professionals around the world whom I might otherwise never know. And other professionals obviously see potential benefits as well since LinkedIn has experienced phenomenal membership and revenue growth. While the founder’s original intent was to “help people connect to people that they already know”, today people are joining for additional reasons and this has caused LinkedIn to become a very hot commodity in recent years.

But attracting people to join their network is one thing, getting them to stay and actively participate is another. All social network providers will be competing for active users (doing more than just being a name), and will increasingly try to match their service delivery to consumer demand in order to do so. Things change, especially in the fast-paced world of social media and information technology. LinkedIn’s rapidly acquired market position can quickly erode should stagnation creep into their service offerings, and their long-term economic health will be challenged they not provide innovative solutions to satisfy actual customer demand.

Beyond “keeping in touch with people”, the reasons for joining LinkedIn may range from (but likely are not limited to) “being the thing to do”, acquiring organizational information faster, communicating with other professionals with similar interests, greater access to a vast range of expertise, and creating potential business relationships. While there is certainly a segment of the LinkedIn membership who will limit their involvement to the founder’s initial vision of mainly keeping in touch with known people, many others have shown an interest in “expanding their horizons” by increasing access to information from people or organizations that are beyond their immediate circle. And perhaps the most significant reason for joining lately is people’s interest in a range of employment related activates – either focused on looking for employment or on hiring new employees. It is not coincidental that, as membership has grown, revenues have also increased substantially since 2009 – things have gone well for LinkedIn throughout the recession because a lot of people are looking for some form of employment related assistance.

Strong Financials

In May 2012, LinkedIn’s newly released 1st quarter financial statements were not only impressive, they out-paced most financial analysts’ expectations. Revenues and profits are up; revenue from the United States representing 64%, (international revenue 36%), and total revenue was divided among “Hiring Solutions” (increased to 54% compared to 49% – 1st quarter 2011), “Marketing Solutions” (decreased to 26% from 30%) and “Premium Subscriptions” (decreased to 20% from 21% in 2001). Many of the premium subscriptions come from “hopeful” people who are networking for jobs, and under the LinkedIn banner of “Finding the Right People Just Got Easier”, recruiters and job seekers are paying for greater access to yet unknown people by being able to “inmail” anyone, increase their search capacity and automate their search process, manage their search results, get noticed more easily, create candidate alerts and finally obtain priority customer service. As well, “hopeful” salespeople can pay to get greater access to people, to automate their search process and to get introduced to specific companies. Generally speaking, revenue based services are focused on helping users better connect to people who they do not know.

LinkedIn’s revenue model obviously supports the notion that more often people want to connect to people who are new to them in some manner – otherwise why would people want to pay for services that help them access people who are already known? Within the backdrop of a global recession, revenues are up because there are substantial numbers of unemployed people who are actively looking to make connections to new people for employment reasons. So as LinkedIn has quickly become the “employment place to be”, the result is that they are currently taking market share away from Monster World Wide, arguably the leading job-posting website – foractive job seekers.

So If Employment Is In Demand – What’s Going On With Monster?

Internet job-posting is not new. Today, it seems like almost “everyone and their brother” has some form of employment website (many coming to the table too late in the game to be effective).  And while there is a lot of competition for job-posting dollars within the web-posting space, Monster has arguably occupied the dominant position on a global scale for a while now. The problem is, compared to LinkedIn’s positive performance, Monster’s revenues have steadily declined throughout the recession simply because fewer employers are willing to pay them to advertise and fewer job seekers are interested in their paid services like resume upgrading. And it is interesting to note that, while overall revenue is in decline, Monster’s revenue decline is less pronounced in the newer, and less experienced, international market as compared to their original domestic (North American) foothold.

Over the years Monster has had to come to terms with a few challenges. First, they grew to understand that on-line position advertising does not appeal to everyone and that “professionals” typically look for work much differently than “non-professionals”. No matter how much “employment advertising providers” may argue the point, in a “normal economy”, talented CEO’s, Presidents, VP’s and Senior Managers, Engineers etc (professionals) do not respond in the same way as “mainstream job seekers” to on-line ads, “cost-effective” hiring approaches or weak recruitment practices. Rather, they expect and require a level of quality that is by nature absent in the higher volume – lower quality on-line position advertising recruitment approach.

As well, in a “normal economy” recruiters often prefer to focus on the currently-employed “passive candidate” (for a variety of reasons) who would not be found on Monster. Eventually learning that paying money for posting advertisements does not guarantee actual hiring results (it only guarantees you a posting), those organizations that required selectivity and quality in their hiring process were often disappointed. And, despite Monster’s aggressive marketing and outward sales initiatives, disappointed clients do not return. The bottom line is that, while on-line recruiting definitely has its place, it is only appropriate and effective for certain people and position types. Monster eventually learned that on-line position-posting just does not work for everybody.

LinkedIn’s Competitive Advantage?

Networks such as LinkedIn have a very distinct advantage over established employment sites like Monster. Since their target participants (users) are already present there is less cost and effort required to attract them to the employment positions that are advertised on their site. As well, there is the potential availability of passive candidates who can be identified even though they may not actively be looking for employment. Whether or not it actually works, people and organizations are migrating to LinkedIn based on the perception that they can get more access to employment solutions simply based on the larger numbers of potential candidates and potential employers. For employers, why use the Monster’s of the world if you can more easily access larger numbers of both active and passive candidates in one place? For the job-seeker, why not go to where more employers seem to be? Under their current business model, Monster is losing market share to LinkedIn – based on perception more than anything else. These losses are first noticeable in the mature North American market, and will later be seen in the growing-to-maturity international market.

But when it comes to on-line advertising – is LinkedIn REALLY doing anything differently than Monster did – and therefore, will they not eventually be as susceptible as Monster to their competitors? Is their current success not in part due to the fact that this is an abnormal economy where employment is a key issue, and where there are a lot more unemployed people, and a lot more dissatisfied employed people than what would have been typical before the recession. Obviously, if LinkedIn is positioned as the current “place to be”, as a new place to possibly resolve employment problems, a lot more people will are going to join so that they can at least try it. And it certainly does not hurt that LinkedIn is right in line with current social trending in which people want to obtain employment information easier and faster, despite the absence of true quality and the obvious potential competition inherent in large networks. LinkedIn’s slogan of “Finding the Right People Just Got Easier is going to be attractive to both the job-seeker and the candidate seeker who expect wonderful results from minimal effort. But will it actually work?

The question needs to be asked; “is on-line advertising effective enough, and sustainable enough, to support the professional market over time”? In this tough economy some professionals are more open to looking for employment in different ways – so they will be more apt to consider on-line ads than they would have been prior to the recession. This is an anomaly – not a trend. As employment prospects gradually improve (in line with gradual economic growth), these professionals will return to their previous selective search preferences and their interest in on-line advertisements will decline. Regardless of the short or long term implications, this will not matter if LinkedIn fails to go beyond the perception of employment matching and is unable to facilitate actualconsistent hiring results. Dissatisfied revenue contributors who do not get what they want will look for alternatives. “If they come on the basis of employment, they will leave on the basis of employment”. Just ask Monster.

From the employer’s perspective, should on-line employment advertising not provide the level of successful hiring required, they too will not participate for very long. Consistent, quality internet recruiting is difficult to achieve at the best of times, and rare successful placement results decline significantly when applied to professional positions. Yes, large social networks can provide a wider audience, but that does not mean that the candidate will be interested in hearing about the position, in making an employment change or, more importantly, that they will actually “fit” with the employment opportunity. The real recruitment value from social networks comes from the ability to identify potential candidates (whom you do not yet know) faster than what could be done from internet searches or through other candidate identification methodology. But identification is the “tip of the iceberg” in effective recruitment – there is still a lot work to be done to ensure a consistent, quality-oriented recruitment and selection process. Professional organizations will demand quality as much as the professionals themselves.

Should lack of effectiveness cause domestic recruitment activity to decline, LinkedIn will still show short term membership growth – primarily due to their active international growth strategies. Of the 15 million new members (2011), two thirds were international (outside North America) and now the international component of total LinkedIn membership is actually 61%.  It can be argued that, like North American membership growth, increases in the main growth areas of Latin America, Asia – Pacific and Southern Europe have been stimulated by people’s interest in obtaining employment. And it can be further argued that, in many cases, these international members are connecting in order to access more lucrative employment opportunities within North America as much as they are searching in their own home countries. In some cases appropriate international hiring matches could be made, but the reality is that most domestic employers will be less interested in international hiring than focusing on the more accessible local labour force – regional targeting makes more sense for certain position types. And it is also important to remember that long-distance, on-line international recruitment typically is the most difficult and has the lowest quality-of-hire results.

The “New” Kid on the Block

Like any successful company, LinkedIn’s spectacular growth is attracting the attention of the competition. More and more organizations will compete for the very valuable active “real identities” (real people) that reside on other social networks. LinkedIn’s next challenge will just as much be to maintain their active membership as it will be to grow it. While there are always the potential threats, perhaps the most immediate threat may reside in the much larger Facebook who has listened to its member’s and is responding with their recent employment-related “Branch Out” initiative.

Apparently targeting demand for mid and lower level employment positions, Facebook is proactively addressing what a large part of their network actually wants, and is providing a service in a way that this group wants to receive it – on-line employment advertising. Not trying to be everything to everyone, Facebook wisely understands that one recruitment approach does not fit with all and that, even though many of these professionals have accounts on Facebook, they will likely go elsewhere to access more appropriate professional employment resources. Facebook is more than willing to let them go, more wisely focusing their immediate delivery efforts on a more appropriate demographic.

As well, Facebook is not fooled into thinking that any current anomalies which are occurring due to a tough employment market will be sustained over time. While their targeting may temporarily overlap into the professional employment seeker, their strategy wisely focuses on a long-term approach to a more appropriate demographic. As a result, Facebook’s Branch-Out will be able to go right after Monster’s real strength simply because they offer more – appropriate services to members and access to suitable candidates for potential employment advertisers. They will resultantly increase their membership numbers using employment opportunity to further grow their active network, they will gain even more on-line time from those Facebook members who, while maintaining a LinkedIn account, will visit it more rarely since Facebook will better meet their employment needs, and they will further define differences between them and LinkedIn. If Facebook can truly provide realemployment results (rather than marketing promises), the growth will be even faster. That said, the odds are that Facebook will accomplish employer-candidate connections more often than the rest, simply because they are better matching the “non-professional” with service delivered in the way that they want to receive it.

“I don’t know what they key to success is, but I do know the key to failure is trying to be everything to everybody”. – Bill Cosby

The Value of Growing and Maintaining Active Membership

I am by no means an expert with social media, but I do understand the value that Facebook and LinkedIn see in having access to “real identities” for both direct and indirect marketing initiatives. The more people who join up, and stay joined up, the more value each network will hold. At time of writing, Facebook’s “friendship” network, had 900+ million users (estimated value $75 billion) and LinkedIn’s “professional” network, had 161+ million users (estimated value $12 billion). Both understand, as does Google, the value of referral marketing that can occur among groups of connected people.

So there is a lot of money at stake in attracting, and retaining, active users. Members who have an account – but seldom use it (inactive) – will not be as valuable to those individuals and organizations that pay good membership dollars, who want to advertise, or who are paying fees for greater access in order to hire. Any initiatives that promise to satisfy specific customer demand, yet in reality do not, will eventually lose the real activity and involvement of their users to the competition after the “hype” wears off. Regardless of the previously mentioned reasons for joining, each user will sustain their involvement depending on how well LinkedIn actually meets their specific needs.

LinkedIn, already established as the “professional network”, would be wise to learn from the mistakes made by Monster, and to innovatively adapt their offerings to serve and retain their more specific professional market. As competition causes the market to adjust, those people who are not active “Facebook types” will certainly stay with LinkedIn, but their usage, accurate personal identity and real value, will depend on LinkedIn meeting their specific needs rather than continuing to try and be “everything to everybody”. Not listening to their market will open opportunity for an organization that does.  If career issues are important to many of LinkedIn’s users, whoever can adapt and provide real employment solutions in the way that they want to receive them will be best positioned to capture this demand.

In this game, revenue is directly tied to membership numbers – real membership numbers. So, whether domestically or internationally focused, subscription, advertising and employment revenue providers will need to see real value in order to contribute revenue and to sustain their contribution over time. LinkedIn will need to be cautious that, while new members may be entering in the “front door”, competition may be taking many others out the “back door” should these competitors better meet user demand – or should users not see value in LinkedIn’s services. Based on their current revenue model, LinkedIn obviously will face some financial challenges should the number of their active users decline.

Some Additional Financial Considerations

In May 2011, LinkedIn began to trade shares on the New York stock exchange and, as many of us know, the initial public offering (IPO) share price closed at $94.25 (US), more than 109 percent above the $45.00 IPO price. Today the price is $118.00 and many would argue, based on a number of factors, that LinkedIn shares remain overvalued. Not surprisingly, after the LinkedIn insider stock sale restriction was lifted, some “LinkedIn insiders” sold portions of their holdings (you can’t blame them, buy low – sell really high).  The IPO was what, in financial circles, is considered an “event” that caused serious overvaluation of the stock. Since it is unlikely that an “event” of this impact will occur in the near future, it is likely best to sell while the selling is really profitable.

One might argue that another event could occur – say the abrupt end of the recession and a sharp increase in hiring – and any employment-focused network providers could be positioned to take advantage when it does. Not only could they add to their revenue stream they could also accelerate their share price. Unfortunately, the realities of the new economy indicate that we just are not going to return to the “way it was”. The economic recovery, and job growth, will be gradual and therefore most likely “non-eventful”. If I were a betting man, all things being equal and with “business as usual”, I would guess that LinkedIn’s stock price is likely to remain high for the short-term but will definitely decline in the long-term. And I think that we will very likely see more short term sales of the stock while the price is still high.

As part of the release of their 1st quarter financial results, LinkedIn identified some risks and uncertainties that need to be considered in accordance with their forward looking statements, some of which were:

· limited operating history in a new and unproven market,

· engagement of members,

· general economic conditions,

· increasing competition,

· ability to manage growth and retain their employees, and their

· ability to maintain revenue growth

While this may seem like fairly typical forward looking cautions, in LinkedIn’s case all of these items are significant. Given this financial backdrop, should real users migrate toward more desired and effective services that are offered by competitors, the revenue stream will migrate as well – and LinkedIn’s already overvalued share price will be impacted. In short, LinkedIn will need to provide demand-focused, real and innovative services or else their users will depart – first domestically, then internationally. This is what Monster is experiencing.

Summary

In today’s highly competitive global economy the most innovative organizations will be able to keep pace with change in demand by offering effective products and services. LinkedIn is no different. By playing to their real strength, instead of their perceived value, LinkedIn will be able to fully capitalize on their unique market position. There is nothing wrong with catering to short-term demand as long as their approach is congruent with realistic long-term objectives. Should they want to avoid an inevitable decline in stock value, LinkedIn will need to provide innovative, effective service to its users, based on what these users really want.

Otherwise, LinkedIn could see a significant migration of active users to the competition which in turn will negatively impact the value perception of their revenue providers and thus reduce LinkedIn’s current revenue stream. Should this happen, in addition to any current financial negatives and overvaluation, LinkedIn’s stock value will decline to an appropriate level (purchase price) and LinkedIn will be much more attractive to a potential buyer who sees value in owning a substantial network of “real identities”. Hmmm… perhaps an organization that has strength with internet advertising, who can offer easy access to valuable content and who is by design an “innovative force” in their own right. Google them.

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