Network Effects
Network effect in this context is referred to goods or services being more valuable with the increasing number of users of the product.This is because of the reason that more users will have a greater use of it(Liebowitz & Margolis, 1994). The common example for such products can be landline phones, fax machines and internet. Similarly, online network services will have greater use with a larger community. The online networking service users have significantly increased from 530 million users in 2008 (Yoffie, Slind, & Achsaf, 2009), to 1.96 billion users in 2015(Statista, 2015). An online network service, with a purpose to connect users worldwide, will create a greater use and value as the numbers are growing day by day.
Social Network
There are generally two common types of social networking services (SNS), one being focused on niche market while the other tries to gain a mass-market. SNSs with niche market tryto provide service to particular target groups, for example Care2 is a network service for community activists(Yoffie, Slind, & Achsaf, 2009). These niche market SNSs can generate revenues by subscription fees, donations or third party advertisements (unlikely, due to limited traffic on these websites). Mostly, the social network services (SNS) are dependent on the number of users as this indirectly affects the revenue of these organizations.
This is due to the fact that most of these networks do not charge a subscription/annual fee from basic users. While, SNS with small user base will not attract much audience, thus, limiting the advertisement views and ultimately revenue for the company.These SNSs sometimes charge subscription fee for premium userswhile providing users with some additional functions(Yoffie, Slind, & Achsaf, 2009).
Broad-based SNS can provide third-party advertisers with a large potential market. Additionally, they can focus their resources on a particular target market with specific audience. This can be achieved due to the fact that SNSs have availability and access of user information from the broad-based users. The famous broad-based SNSs include Facebook and MySpace(Yoffie, Slind, & Achsaf, 2009).
Professional Network
On the other hand, Professional Network Services (PNS) are built around the idea of bringing professionals together on the same platform.These defer from SNSs in terms of the contents generated, communication means and the type of users.Similarly, the contents generated on these networks also largely differ from SNSs. PNS provide users with a means to interact and deal with the people in the professional life(Yoffie, Slind, & Achsaf, 2009). These people would not be interested in the shared photos, online games or other personal activities. Still, these networks target a broad-based market with a partial segmentation based on the contents generated.It also restricts the type of advertisement on these networks, which can limit the revenue generation from third parties.
Therefore, PNS offer multiple subscription options to the users to generate additional revenue. Different PNSs have different approach towards the subscription options offered. These subscriptions options provide users with additional functionality like connecting to second or third-degree users or job application priority options. Ryze(.com) was first network of such type which provided users with options for messages, free advertisement sections and profile access to other users.
It had a user-base of 500,000 by 2008 and it used to charge users from $10-$20 as monthly subscription fee to reach members out of the current network by two degrees (connections) (Yoffie, Slind, & Achsaf, 2009).
It can be concluded that even though both SNS and PNS have a strong network effect, but yet each have a different approach towards the target market.
2. Strategy of LinkedIn
The vision of LinkedIn is focused towards it being a leader in professional and business networking service provider with a variety of productivity tools for its users. This vision drives LinkedIn strategy. Similarly, it differentiates itself from SNSs based on the customer base and the work-life distinction. Dan Nye, CEO of LinkedIn, believes that people will start to maintain two online profiles focusing on personal life and professional life separately(Yoffie, Slind, & Achsaf, 2009).
In 2006, LinkedIn achieved the break-even point for the first time with the sales of over $10 million. The revenue generated comes from three main services, recruiting, advertising and research while providing sustainability.It has differentiated itself from both SNSs and the common job portals by providing options of having descriptive profile and projects. It had four business segments namely, advertising, subscription, job posting and corporate solutions. These units roughly provide the same proportion of total revenue (25% each). The diversified business segments give it a competitive advantage and decrease the dependency on a single source of revenue(Yoffie, Slind, & Achsaf, 2009).
Advertising: It started offering advertising services in 2007 and within a year, it generated considerable revenue for the company. According to statistics, LinkedIn user was considered more attractive reader than the popular business publications (refer Exhibit 1a). Additionally, the advertisements were selected to align with professional identity of LinkedIn(Yoffie, Slind, & Achsaf, 2009).
Subscriptions: LinkedIn premium users are charged with a subscription fee to include features like sending InMails, generate introduction and other featured options. The options include Business, Business Pro and Pro at $19.95 per month, $50 per month and $200 per month respectively (see Exhibit 1b) (Yoffie, Slind, & Achsaf, 2009).
Job posting: Another key revenue generating source for LinkedIn is the Job postings by organization. It is similar to job posting on a newspaper with some featured jobs as well.
Corporate solutions: It provided corporations with a custom version of LinkedIn to find contact and manage the applications.
This wide distribution of revenue generating services provides LinkedIn with the added advantage over the competitors and makes LinkedIn successful compared to other PNS.The SNSs pose the biggest threat to LinkedIn, as users are diverted towards a unified networking platform. Additionally, the SNSs have higher rate of growth compared to PNS. The growth for LinkedIn will be stagnant after some years due to the focused target market..............
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