LinkedIn vs. Facebook: Is the "Boring" Underdog Poised to Beat Its Flashy Competitor?
Despite the spotlight on Facebook and its massive user base, the social network's more professional competitor, LinkedIn, is poised for profitability and more immediate financial success. Analysts also say investors see revenue potential for LinkedIn that extends beyond advertising.
Fri, October 24, 2008
CIO — During the past two years, Facebook became the darling of Silicon Valley, watching its user base grow exponentially as its founder bombastically turned down billion dollar acquisition offers. But as the sobering realities of a tightening economy set in, it turns out LinkedIn, the social networking site for professionals, might be on track to build a more stable and immediately profitable business model that, unlike Facebook, doesn't rely solely on advertising and never-ending injections of venture capital.
LinkedIn has thrived this year, and it did so without deviating from its plain look and design, devoid of the pictures and playful applications that embody the Facebook landscape. Just this week, Dan Nye, LinkedIn's CEO, announced that the company had taken $22.7 million in funding from SAP Ventures, Goldman Sachs, and The McGraw-Hill Companies. This is on the heels of $53 million in series D funding LinkedIn received back in June, valuing the company at $1 billion.
Even if LinkedIn's value falls short of that figure, and many believe it does, analysts say the service has undoubtedly kept a loyal user base (29 million) that will give the site unique opportunities to monetize in the coming years. That prospect has impressed investors, especially as they watch other social networks, namely Facebook, struggle to find the ideal method for displaying ads.
On Wednesday, Nye told Techcrunch that LinkedIn, a privately held company, has been profitable since 2006. That stands in sharp contrast to Facebook, whose founder and CEO, Mark Zuckerberg, recently said he hopes to see his company come up with a profitable business plan in three years.
LinkedIn has won the confidence of investors by showing a variety of ways in which it can generate revenue. In addition to advertising and gathering cash from premium accounts, the recent investments in LinkedIn, especially by SAP Ventures, indicate that the company could get involved in the business software market, a sector that has largely failed to capitalize on social technologies to meaningfully improve their products.
The loyalty of LinkedIn's users has proved important to the company's success too. Analysts say that their devotion isn't just predicated on the service being well-designed; they are simply beholden to legacy. Since LinkedIn was the first successful business social network, many people built their contact (or "connections") list there. Even if Facebook or another competitor wanted to make a play in business social networking, users might not bite.