Back in January, LinkedIn had raised $12.8 million from Bessemer and European Founders Fund (EFF) based on a valuation of $250 million. Last month LinkedIn announced its $53 million round led by Bain Capital, based on a $1 billion valuation. At the time many prominent blogs raised their virtual eyebrows by the high price. From their point of view the price was inflated. I would totally agree if LinkedIn was just a social network but it’s in fact much more than that. Rob Webb of KnowledgeBid has an interesting post on LinkedIn’s quiet launch of two monetization channels :
1) LinkedIn Direct Ads: Much like Facebook’s Social Ads, LinkedIn is offering advertisers the ability to specifically target ads by gender, age, geography, job info, seniority, education etc. Interestingly, LinkedIn made no official announcement on its blog yet, but the Direct Ads FAQ has the scoop. Orders start at $25 and billing is based on the CPM.
2) LinkedIn Research Network: This is an interesting one. Since mentioning a research product during its previous valuation in January, the much talked about LinkedIn Experts service went dead. In an effort to penetrate the expert network business, LinkedIn enabled people to seek expert advice for a fee of $500 an hour, split 50-50 between the expert and LinkedIn. While offering an alternative to Gerson Lehrman Group’s subscription model (disclaimer: I am a former GLG employee), LinkedIn Experts never took off, not only because of price, but due to lack of a compliance framework and technology limitations that enabled approaching any expert directly through LinkedIn’s InMail feature.
Now, LinkedIn is taking a new spin on the idea. The new offering (pdf) consists of basically “cold calling” industry experts via a premium version of InMail, 20 emails at a time by enabling advanced search by company, industry, title, expertise and keywords.
Who is the target customer?
I believe that LinkedIn is not going after the hedge funds, vc funds and private equity funds with this product. Even though compliance is advertised as one of the LinkedIn Research offers, I highly doubt that they would be able to easily recreate GLG’s legal compliance framework, that is essential for a regulated hedge fund. Instead, LinkedIn will try to seize the opportunity with the private investors, the small funds and the day trading shops, who are willing to pay for quick information, without too much commitment.
In summary, LinkedIn has raised about $80 million to date, compared to Facebook’s $500 million, and GLG’s $250 million. It has 21 million subscribers compare to European competitor XING with 5.71 million users. LinkedIn is positioned well to make a big play in the research industry but their real challenge is going to be execution.
That said, LinkedIn is still primarily a website, and the traffic numbers are slowly declining. So what do you think? Can LinkedIn justify its $1 Billion valuation? The VCs that invested in the company seem to think so. Watch the video:
And while you are at it, take the VC Cafe poll (courtesy of PollDaddy.com):