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March 16, 2005

LinkedIn Expands Its Connections

LinkedIn Expands Its Connections

MARCH 16, 2005

NEWS ANALYSIS:TECHNOLOGY
By Sarah Lacy


LinkedIn Expands Its Connections
The social-networking site is now counting on a job-referral service for growth. Its success -- or failure -- could have wide impact
Trying to make money with sites that connect people over the Internet has always been risky. Yet even now, startups are still trying, and they look to sites like eBay (EBAY ) for inspiration and to the first Napster, Match.com, and Craigslist to try to replicate the intangible sense of community and trust those early networking sites created.

But in 2005, investors -- private or public -- want proof of real businesses, not just examples of stunning experiments in the art of viral marketing. Two years ago, a boomlet of social-networking companies were formed, the most high profile of which were Friendster, Tribe, LinkedIn, and a few others. Together, they raked in some $61 million in venture capital and brought back a lot of memories of the Web boom -- when companies easily garnered hefty valuations based on how many users they had, not the revenues they booked.

E-MAIL TREE. As skepticism about the business model builds, one of these services has unveiled a plan on how it thinks it can turn a profit. On Mar. 1, LinkedIn, the social-networking site aimed at working professionals, launched a pay service, LinkedIn Jobs. Already, it has bagged listings for more than 100,000 jobs at $95 a pop, according to Konstantin Guericke, co-founder and vice-president for marketing. "We focused on that [area] because of all the classifieds, employment is the biggest money maker and the one that has moved most significantly online," he says.

LinkedIn plans to siphon some of the hundreds of millions in revenues top sites like Monster Worldwide (MNST ) and Yahoo!'s (YHOO ) hotjobs.com are pulling in with their digitized classifieds and other services, and take share from the multibillion offline recruitment industry. Experts say LinkedIn has a lot going for it. In the past two years, it has signed up over 2 million businesspeople. That's more than any other social networking site focused on the business world, according to market researcher Kelsey Group.

Here's how the site works: New subscribers can send invites to practically anyone who has ever e-mailed them. If the e-mailed person accepts, he or she joins the network of the person who sent the e-mail. Then, say a subscriber wants to meet famed venture capitalist John Doerr. The subscriber can search by name, the keyword "venture capitalist," or Doerr's firm Kleiner Perkins Caufield & Byers to find out who knows Doerr. The subscriber then sends a note asking his or her contacts for a referral. The idea isn't exactly a substitute for real-world networking -- the person has to know someone who not only knows Doerr but doesn't mind introducing a new subscriber to him.

BIG NAMES. LinkedIn is betting that nifty six-degrees-of-separation quality will give it an edge over sites like Monster.com and hotjobs, which have turned off many potential employers by inundating them with far more résumés than they could possible need or want. Truth is, companies are 10 times more likely to hire from a referral, experts say. "So far, the job boards haven't helped with that," Guericke adds.

In just a few days, some members have already found jobs through LinkedIn's new service. Stephen Wachter, from Palo Alto (Calif.) recruiting firm Osprey One, found an engineering vice-president for Yahoo. The person was in his network, but he hadn't previously thought about him for the position.

"You tend to think you've got your arms around a potential pool of people, and I was pleasantly surprised with the ability to access a few more people that were a good match," he says. Still, he cautioned that LinkedIn might end up being more of a niche site for high-level jobs in certain industries.

LinkedIn does boast some heavy-hitters: VCs from Sequoia Capital and Greylock Partners, as well as angel investors Peter Thiel, founder of PayPal, and Marc Andreessen, founder of Netscape, use and promote LinkedIn. Andreessen reportedly tells the flood of attendees who approach him after speaking engagements, if they can reach him through LinkedIn, he'll take a meeting with them.

LATECOMER. And LinkedIn is running about as lean as can be. With just 40 employees and no cost of goods or inventory, it shouldn't take much to turn a profit, Guericke says. So far, it has grown entirely by word of mouth. It has no sales people, and Guericke is one of only two in the marketing department. That has been great for stretching its $14 million in venture-capital funds.

Yet LinkedIn is dwarfed by Monster's 15 million unique monthly visitors and is working against the clock to reach critical mass in its marketing efforts. "Anytime you take a change of behavior and introduce it, it takes time to work and education needs to be done," says LinkedIn investor David Sze of Greylock. "It may take time, like most things do on the Web. But it's a big enough space, we don't need to take a ton of business to be successful."

And as a relatively late entrant into the online-recruiting market, turning that subscriber base into a paying customer base will take more marketing and customer outreach than anything LinkedIn has done before. Competition likely couldn't be more intense. Rival social-networking companies Tribe.net, Ryze, and ZeroDegrees are gunning for the same subscribers. And Monster.com isn't standing still -- it bought social-networking site Tickle last May for an undisclosed sum.

LinkedIn is a critical turning point for the industry. If things go as planned, it could validate the social-networking hype of years past. But without careful execution, it could wind up just another plot in the dot-com graveyard -- and another costly lesson for Internet businesses to come.




Lacy is a reporter for BusinessWeek Online in the Silicon Valley bureau
Edited by Beth Belton

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