Here’s why.
Our professional lives don’t change at nearly the same pace as our social lives. Many users only return to LinkedIn to update their profiles when they change jobs, but the information LinkedIn has about users’ professional life is relatively current and up-to-date. On the flip side, Facebook requires you to constantly update your rapidly changing social information to retain value as well as stay relevant to target advertisers.
People take a great deal of creative license when they represent themselves in their social circles. Of course it happens in professional life as well (I’ve seen quite a few cases of rounded-up GPAs or overstated ‘charity’ involvement), but you don’t typically see resumes where the candidate says they attended “The School of Hard Knocks” or are the current President of the United States, when actually they are still a senior at Berkeley. On Facebook, facts are just not as important as having fun and impressing your friends. But it’s easier for advertisers to monetize accurate information that truly reflects consumer identities and preferences.
What defines me professionally is far more limited than what defines me socially. My social identity on Facebook is a complex and ever-changing amalgamation of ideas, interests, thoughts, pictures, places and media that I am perpetually curating and refining as my tastes and life change. However, in the professional arena, I am defined by a far more standardized set of criteria: where I live, my age, where I worked, my job title, where I studied, what I majored in and my GPA. For recruiters, this is easy data to digest and utilize, and it doesn’t change very often. This is also what makes it so valuable and inherently easier to monetize.
Put it like this: if users simply stopped editing their Facebook profiles, Facebook would have little value to advertisers after about 3-5 years. Conversely, LinkedIn would still be the largest collection of professional data and resumes in the world.
Enterprise spend versus consumer spend
Consumer-focused business models can be a real slog, and steady monetization is elusive. First, there are the challenges of scaling and distribution, then fast-paced innovation and blistering competition, not to mention the fickle and unpredictable spending habits of the customers themselves. Remember when Netflix increased their prices marginally? Members were outraged and attrition skyrocketed.
SAP and Oracle steadily increase prices on their enterprise customers each year with clock-like dependability with very little fallout.
When companies find a solution that works, they adopt it, integrate it, budget for it, and are unlikely to shed it. Mass adoption can take years, even decades, to achieve, but once established, the revenue streams can resemble a long-term annuity.
Despite yielding revenue from premium subscriptions and consumer-facing advertising, LinkedIn, at its moneymaking core, is an enterprise company. It sells its lead enterprise recruiting solution, LinkedIn Recruiter, at a high price-point, as well as a number of other offerings for the enterprise.
My gut tells me that Wall Street likely values the long-term enterprise contract revenue at significantly higher multiples than the consumer-facing streams.
Whether that’s advertising to users to buy a good or a service, enrolling them in a game, Facebook makes money in one way: facilitating consumer spending. This generally means more volatility on the path to monetization.
Place your bets on LinkedIn
Enterprise software certainly isn’t sexy. It doesn’t attract the level of innovation and reinvention seen in the consumer industry. It’s hard to “explode” or “go viral”, much less have movies made about you as an enterprise company. But it is reliable, easy to monetize and delivers consistent returns.
So as the comparisons between LinkedIn and Facebook’s performances as public companies keep everyone watching this space closely, there really is no great mystery to LinkedIn’s success. The social and professional divide means they are inherently different businesses at very different stages of monetization.
This may not be the story that Hollywood or Silicon Valley is interested in, but it has certainly captured the attention of Wall Street.
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