Although relatively unassuming, LinkedIn is one of the most valuable tech properties in the industry today. This post discusses four strategies it has employed from which other businesses can learn.
Reports in the international press over the last few weeks have suggested that tech shares in the United States are currently experiencing a decline. Shares in prominent companies, such as Apple Texas Instruments, Verizon and Dell, have not been performing as well as anticipated, which suggests that analysts might not be as confident about the industry’s continued trajectory. Additionally, since its Initial Public Offer last May, Facebook has not been performing as well as had been anticipated, and other online properties such as Groupon, Foursquare, Zynga, and even Instagram, have seen their popularity erode, and questions are being raised about their longevity.
One noteworthy exception, however, has been LinkedIn, the professional networking site. Earlier this month, it achieved a major milestone, 200 million subscribers, and in value, its shares are trading well in excess of its initial asking price. Although LinkedIn is often considered a lightweight in comparison to Facebook, which has over 1 billion subscribers, LinkedIn has been more effective at monetising its platform. Additionally, in terms of per capita value – the ratio of market capitalisation to subscribers – the company is “punching well above is weight”. Hence this post highlights five strategies evident in LinkedIn, which tech entrepreneurs and businesses could consider applying.
1. Just creating a social network is no longer enough
An important business model that has emerged in the Web 2.0 era is to integrate social networking either as the main focus or one of the key drivers of a business. By cultivating a large network – followers – a business can demonstrate its influence, which could increase the revenue it generates from advertisers.
In the past, people might have been excited to test a variety of different social networking concepts; and many platforms were considered a great success, with investors clamouring to get involved, although no revenue was being generated. Now, the novelty has worn off. Both consumers and investors have become more elective, and businesses can experience difficulty connecting with consumers.
In the case of LinkedIn, the concept behind its platform was to create a professional network through subscribers to can develop linkages that can help them further their personal careers. Hence businesses could benefit considerably from having sound product or service offerings that individual customers find valuable, over and above what they might already be getting from existing platforms.
2. Freemium models can work
Many tech businesses, especially those that develop games and software applications, frequently use a freemium model. With this approach, the basic product or service is available to customers free of charge, but they would be required to pay to access certain special features or services.
In many instances, whether it might be due to pressure to launch or just sheer excitement, many businesses launch their products completely free, and in later iterations, try to introduce the freemium model. However, this approach tends to be riddled with problems, as it can be difficult to add new features to an existing free product, which are of sufficient value that customers would be willing to pay for them. Frequently, businesses resort to watering down the initial product – by removing some of the current features – in order to make a clearer distinction between their free and premium versions, which again can undermine the success that had been realised.
Learning from the LinkedIn model, the premium features are not solely gratuitous; but appear to truly add value to the user experience, for which people are willing to pay. The company was (relatively) clear from the outset what features and services would be free to all subscribers and those that could be accessed for a fee. Hence should a business opt to use a freemium model, it ought to be prepared from the start to fully flesh out that framework, in order to reduce the need change its approach mid-stream.
3. Develop more than one revenue stream
As indicated in earlier paragraphs, a considerable number apps and web-based services rely, or plan to rely, completely on advertising to generate revenue. Due to the stiff competition for advertising dollars, many businesses struggle to break even, and for the entrepreneurial developer, the income generated might be wholly inadequate to allow him/her to be self-employed.
On LinkedIn, although there is advertising, it does not overwhelm the site and appears to be aligned with the platform’s interest and focus. More importantly, since it also has a well-developed freemium model, which does enjoy considerable take-up, the company appears to be more stable, and its continued viability might not be as susceptible to the whims of advertisers.
4. It can be more lucrative to focus on a niche market than try to be all things to all people
Quite often, businesses design their offerings to appeal to widest possible audience, and this is more so the case when they are depending on advertising revenue for their viability. However, having the largest possible subscriber base does not necessarily guarantee the success of your business. An important example of this is Facebook. As mentioned earlier, it has over 1 billion subscribers, who post their status, news, articles of interest, images, etc., which can be seen by their followers (among others), but the company has been having great difficulty converting the impact of this massive audience into tangible financial returns.
The LinkedIn experience does suggest that there are considerable benefits in being strategic and in focussing on a niche market. Although the customer base might be smaller, a business might be in a better position to address specific needs of a particular segment of the market, along with how it might be able to add value, which customers might indeed find invaluable.
Image credit: LinkedIn
____________________
Referring to Facebook: I think there are various strategies and models that businesses adopt. Some are by necessity and others by design. I strongly think that Facebook’s sheer large playground structure opens up an endless source revenue-generating ideas.
Just like a lot of online auction sites. Many, at start and for long, did not maximise their sites for revenue. But taking advantage their platforms, as a constantly visited site, a lot of ideas have kept on being discovered: not just advertising, but ideas ranging from “Announcements” to even Cloud Computing services.
I feel that for that reason, Facebook still has a bright future as a business.