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How is LinkedIn better than Facebook

Raghav Agrawal, SIBM Bangalore

ConQuest Online August 2012 Edition

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How is LinkedIn better than Facebook

Raghav Agrawal, SIBM Bangalore

Introduction
From the perfunctory view both Facebook and LinkedIn appears to do the same business. Both giants in social media, gaining revenues from advertising and their unquenched thirst to add more number of users year on year. But a thoughtful view places both the giants apart. The main difference is blatantly the target audience. Facebook targets everyone rather for LinkedIn is truly for professionals.

What makes LinkedIn different from Facebook?

LinkedIn and FB are very different at its core. First of all, FB is not an application rather a platform where users can share and communicate contradictory to LinkedIn which is more of a data centric company that analyze and sells data. This question of difference is significant because of recent disastrous IPO of FB. LinkedIn, which has smaller profit margins than Facebook, trades at 671 times earnings. Facebook is selling for 75 times profit. Lets analyze how to both companies make money. For FB its advertisements and sharing data of its users to various analytics company. For LinkedIn its more than advertisement and subscription. LinkedIn is secretly turning its 161 million member profiles into 21st century version of the "Black Book" that no corporate recruiter can live without. It will serve as "The Bible" for $21Billion recruiting industry. That is LinkedIn CEO Jeff Weiner Bulls bull`s eye. He is very clear in his revenue model. Rather than scouting here and there for $10 as revenue from individual customer, he targets more powerful service to corporate scout for as much as $8200 per user per year. Today thousand of companies use LinkedIn flagship recruiter talent to hunt for skilled achiever. The fad of asking business cards after meeting has been redefined to connecting through LinkedIn. LinkedIn leverages that well by buying CardMunch, an iPhone app that converts business cards to digital contacts. Also it recently acquired Slideshare,a sharing platform for PowerPoint to compliment this strategy, which updated your LinkedIn profile the moment you share your best PowerPoint presentation adding more value to your portfolio.

How are they different in Marketing?

From marketing perspective, FB is about being cooler. LinkedIn although dull but its functional with loyal customer base. When one logins into FB he has nothing in mind while for LinkedIn its professional growth, profile building and new career prospects. FB targets the mass while LinkedIn is more niche to business people. LinkedIn has doubled its sales employee in the past year and spent around 33% of its revenue on sales and marketing which is highest compared to its peers, FB-15% and Google-12%.

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How are they financially different?

Now let us financially analyze both. FB derives 85% of its revenue from advertising and makes money only when you`re on FB. Contrary to LinkedIn that monetize users information while they are offline, i.e. they monetize our information not time. While FB may boast about the time spend by users on FB in a month that is 6.25Hours compared to 0.30Hours on LinkedIn but FB will only earn when user clicks on numerous ads displayed on their site. Calculation is the Figure-1 depicts that. Definitely LinkedIn revenue is more sustainable. More so because of web going mobile where ads space is limited, LinkedIn is not so ad dependent as FB. Moreover FB generates roughly 10% of its revenues from games like Zynga and others. That is why it is more dependent on applications so that people spend more time on FB. It cannot charge a Premium Service from its customer unlike LinkedIn that is sells its premium recruitment database at a hefty price.

How are they operationally different?

Operationally LinkedIn is very competent. Traditionally if you had to recruit someone you needed to contact hire agencies that charged exorbitantly and had low retention rate. Now searching a suitable candidate is a matter of few clicks, thanks to LinkedIn Recruiter Database. The references in prospects resume will do the reliability check and moreover site also reflects if the prospective job seeker has any connections in your own company. LinkedIn operational efficiency can be proved from the fact that is has ruined the existing players like Heidrick & Struggles, Monster Worldwide etc. in online recruitment business. Today LinkedIn adds a user every 2 seconds. It has already crossed 160 million. Its mantra is clear- Fix site so that it doesn't crash, rigorously analyze what recruiters want and then sell, sell and sell.

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A. B. C. D. E. F.

Total Members Monthly Hours per Member Member Hours(A*B) Monthly Revenue Member Hours Hourly Member Revenue(D/E)

Facebook 900,000,000 6.35 5,715,000,000 $352,670,000 5,715,000,000 6.2 cents

LinkedIn 161,000,000 0.30 48,300,000 $62,818,000 48,300,000 $1.30

Source: Secondmarket, Interactive Data via Factset Research System

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User Profiles

Age can provide insight into who is using a site and, at least in the case of LinkedIn and Facebook, how. The chart above shows how site traffic breaks for both sites, based on unique visitors in June 2008. Unsurprisingly, Facebooks audience skews younger than LinkedIn but it is important to note that both sites receive nearly 90% of their traffic from people under the age of 55. Looking at the overlap between the two networks, it appears that many people are either separating these two functions, or simply maintaining an identity on both sites. The chart below shows the percentage of Facebook and LinkedIn users, broken out by age group, who used both sites (or one site exclusively) in June. The chart to the bottom right also illustrates the change in each overlap segment from the previous year.

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Why is LinkedIn darling of Wall Street?

Currently trading at twice its IPO price compared to FB at 52% its IPO Price, LinkedIn is investors favorite. Not only have that, LinkedIn shared price doubled on the day of its IPO whereas Facebook share price remained flat. There is nothing intriguing about LinkedIn but at stock market it is all about making money. With its consistent and stable revenue model, LinkedIn is able to generate $1.30 per user hour on the site as compared to 6.2 Cents per user hour of Facebook.

Threats to LinkedIn
It`s not that all seems so well for LinkedIn. Most of its users are in 40s pursuing white collar jobs, which is a limited population. Young college goers may find FB or Twitter cooler place for sharing photos and all rather than unexciting LinkedIn. LinkedIn is trying its best to gain a share of part time workers, college goers and non-professionals by recruiting college goers around the world. One more serious threat to LinkedIn is BranchOut, a fast growing application that essentially replicates the professional networking of LinkedIn within Facebook. Growing as fast as LinkedIn, its USP is 850million+ people on Facebook, many of whom may or may not use LinkedIn. BranchOut lets you shield all your personal data and creates a professional information that you can share with your office colleagues. It is like a one stop shop where you can keep both personal and professional data and BranchOut will take care of the rest. Although BranchOut does not have sales, data analysis and recruitment functionality but in time to come it will be a true competitor to LinkedIn. Its good that LinkedIn is very focused on its niche and core competency that is - if you want to change your job, LinkedIn will aid the entire process for you. Its central database for recruiters will be LinkedIn silver bullet. The company has potential to grow exponentially in corporate recruitment market. It will be the panacea for a recruiter to find best suitable candidate. Although LinkedIn may not have a direct competitor as for Facebook its Google, the road ahead for LinkedIn is patchy and tough. Let us see who among Facebook and LinkedIn finally cuts the mustard.

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The Team

References
http://www.jeffkorhan.com/2012/05/facebook-vs-linkedin-is-publicbetter.html http://blog.compete.com/2008/07/22/facebook-vs-linkedin-trafficdemographics/ http://tickledbylife.com/index.php/10-reasons-why-facebook-vslinkedin-is-still-relevant/ Forbes India Magazine August Edition.

Conquest Online is the online edition of ConQuest which is a student driven Consulting club of IIM Shillong. The ConQuest Team includes Aritra Nayak | aritra11@iimshillong.in Arpit V Tripathi | arpit11@iimshillong.in Nimesh Nair | nimesh11@iimshillong.in Pochineni Shalini | pochineni11@iimshillong.in Rishi Gupta | rishi11@iimshillong.in Shirish Prakash Jain | shirish11@iimshillong.in Sunayna Agarwal | sunayna11@iimshillong.in Tarun Gupta | tarun11@iimshillong.in

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