LinkedIn - The Possibilities Are Endless
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LinkedIn (NYSE: LNKD) has been recommended to me many times over the past 6 months. I wanted to pull the trigger but never could because of its sky-high valuation.
I cannot imagine life without LinkedIn anymore. I was one of their first 1 million members. I use it every day. It has become habitual. LinkedIn has become, and will remain, the default networking and (proactive) hiring tool for many, many years to come. Hiring and networking will never be the same.
I never doubted LinkedIn’s existing business model, or their moat, or they longevity, all of which I consider superior to any of the other social media classified companies such as Zillow (NASDAQ: Z) or Facebook (NASDAQ: FB).
LinkedIn’s 175 million plus members across 200 countries may “only” be about 15% of Facebook’s base, but LinkedIn is doing a much better job at monetizing that membership base and they are not just relying on advertising. Their Hiring Solutions and Premium Memberships generate about 2/3s of their revenue. Advertising is only a component of their business.
Until Facebook will start to prove it is effectively replicating its desktop success in mobile, and until Facebook proves that they can turn the data they possess about our behavior and preferences into true intellectual property that they can monetize at premiums, they are walking a really fine line. To me their business model is too fragile.
Zillow has a similar reliance on advertising revenues. Their agency subscription service I am not sure will ever take off. Realtors have their own internal databases and software solutions that keep listings completely updated and to which they control access and so far provides far more accurate information about properties. The listing information on Zillow.com is often outdated or inaccurate. It is a great guidance tool, but that is about it. Until real estate becomes a market place where owners will mostly sell property without a Realtor, which means that the owners would advertise directly on Zillow, I believe Zillow’s subscription service will have limited impact, which again leaves them dependent on advertising. I do not see realtors embrace Zillow in the way that Zillow needs realtors to love them to maintain a long term sustainable business model.
LinkedIn is increasingly becoming a truly global force. While penetration is mostly advanced in the USA, over 60% of its total membership base are outside the USA. Western Europe is not far behind. Recently I have noticed a significant increase in activity in India, China, Japan, the Middle East, and Latin America. Especially by offshore recruiters/headhunters hired by US based organizations. LinkedIn’s recent decision to enable its members to create profiles in languages other than English was a timely and brilliant upgrade to further accelerate international expansion. Growth is continuous and will be for a long time.
But……to justify the valuation I needed to know “What is next?” I needed to see what else LinkedIn could expand its business. The potential and ability to re-invent and improve your own business model is critical to survive and continuous growth. Last week, I finally understood.
Let me explain why:
We have beachfront property for sale in the Caribbean. It is of significant size, absolutely beautiful, in an area that is gradually developing as a result of infrastructure investments and tourism project developments such as the construction of a luxury resort only a few miles away from our land.
Because of the size of the property, it is not easy to find parties that have the funds to make such a purchase. After years of working with realtors and brokers I discovered the real power of the “Groups” on LinkedIn. Within 10 days of dropping a line and a link to market our land on one of the Group forums that focus on property sales and project development in the Caribbean, we received 2 inquiries. That is about the same we were getting every 6 months, and most of the time they were not serious and quite vague.
What makes inquiries so much more powerful than a random email or phone call, is that the people who are asking about the property via LinkedIn are part of a Group you share with them. There is an instant connection. Membership to the best of these Groups has to be approved. Not everyone can join. When an interested party makes a request their profile is displayed so you know who this person is. Immediately, there is a higher level of trust, sincerity, and credibility associated to the inquiry.
Companies such as Zillow or Trulia, or global international realtors such as Sotheby’s or RE/MAX do not offer the equivalent because their business still relies on serving the realtor and themselves. Zillow and Trulia want the realtors’ advertising dollars, and Sotheby’s and RE/MAX want to book those steep commissions. LinkedIn’s Group concept has the power to take out the middleman while more effectively bringing together Sellers and interested Buyers. If you think about it, online real estate sites, such as Zillow or Trulia, are actually still Web 1.0, maybe Web 1.5, with a new jacket. They really have not built an interactive real estate market place, and professional interactivity is exactly what LinkedIn does so well.
LinkedIn focuses on bringing professionals and hiring managers together. The Groups bring, in this example, Buyers and Sellers together in the same manner. LinkedIn just has not turned that component of their platform into a business….yet.
I do not know whether LinkedIn is aiming to enter the real estate sector or any other sector beyond professional networking. However, I am convinced that LinkedIn is just starting out as a professional networking community. It is just the beginning. The opportunities to diversify and expand are endless.
LinkedIn is the most trusted platform that brings people with a common business interest together anywhere in the world. As long as LinkedIn does not break that trust, growth can be continuous in our lifetime.
That is why the valuation does not turn me off anymore. That is why I pulled the trigger.
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BEF1973 is long LNKD. I recently closed my position in Z. I do not own any of the other mentioned tickers in this write-up. I may add another LNKD posiition in the next 72 hours.. The Motley Fool has no positions in the stocks mentioned above. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.If you have questions about this post or the Fool’s blog network, click here for information.