linkedin-business-model

LinkedIn Multi-Sided Platform Business Model Explained

LinkedIn is a two-sided platform running on a freemium model, where to unlock unlimited search and other features, you need to switch to a paid account. In addition, LinkedIn is the most successful B2B advertising platform. In fact, by 2022, with over 850 million members, LinkedIn generated over $6 billion in revenues through its Talent Solutions and over $5 billion through its Marketing Solutions (B2B advertising platform). Acquired by Microsoft for $27 billion in 2016, LinkedIn might now be worth anywhere between $100-150 billion. 

LinkedIn Mission and Vision 

LinkedIn’s mission is to: 

Connect the world’s professionals to make them more productive and successful.

While its vision is to: 

Create economic opportunity for every member of the global workforce.

LinkedIn achieves its mission and vision by enabling a two-sided online marketplace whose aim is to connect professionals with career opportunities. 

On the other hand, LinkedIn has successfully transitioned, over the years, into a B2B advertising platform, which, in 2022, generated over $5 billion in revenues! 

For some context, by looking at the advertising landscape, LinkedIn’s advertising machine is still small compared to Google’s over $148 billion and Facebook’s over $114 billion. 

Yet, LinkedIn’s advertising machine has been growing at an increasingly steady pace, and in 2022, it generated as much as Twitter and almost double Pinterest’s revenues from advertising! 

advertising-industry
The digital advertising industry has become a multi-billion industry dominated by a few key tech players. The industry’s advertising dollars are also fragmented across several small players and publishers across the web. Most of it is consolidated within brands like Google, YouTube, Facebook, Instagram, Amazon, Bing, Twitter, TikTok, which is growing very quickly, and Pinterest.

The LinkedIn business model explained

Back in 2002, former PayPal Mafia member Reid Hoffman together with Konstantin Guericke, Jean-Luc Vaillant, Allen Blue, and Eric Ly, created the professional social network that would grow until it was acquired by Microsoft for $27 billion in December 2016.

A well-designed business model is one of the primary drivers of value for any company in the long run (together with the product, distribution, and organizational structure).

So how did LinkedIn become a company worth $27 billion?

We’re going to focus on two aspects. First, how LinkedIn makes money. Second, what customers it serves.

Third, we’ll see how, when, and why it makes sense to build a multi-sided platform, just like LinkedIn has done.

Freemium, subscription-based, and advertising

LinkedIn’s primary growth tool is its freemium model.

freemium-business-model
The freemium – unless the whole organization is aligned around it – is a growth strategy rather than a business model. A free service is provided to a majority of users, while a small percentage of those users convert into paying customers through the sales funnel. Free users will help spread the brand through word of mouth.

Breaking down LinkedIn’s Two-Sided Network Effects

As a professional social network, anyone can join the platform, thus enabling its viral growth.

LinkedIn’s success is based on its value as a professional network where people can manage their brand while recruiters can find candidates to fill job vacancies.

This is known as two-sided network effects

In other words, the value of the network increases based on two different players, which are connected from a value chain standpoint. 

The more business professionals join the platform, complete their profiles, and improve their skills. The more the platform becomes valuable to HR professionals. 

And, in reverse, the more the platform comprises companies and brands, the more their HR teams look for talent. The more LinkedIn becomes valuable to business professionals. 

This is how the network reinforces itself. More talented business professionals attract more companies. More companies attract more business professionals. 

And when the network becomes valuable, this enables LinkedIn to have flexibility in terms of how to generate revenues. 

In other words, LinkedIn can now offer various services, which enables it to grow in multiple directions. 

Breaking down LinkedIn’s educational platform

Indeed, LinkedIn also has a platform related to education and skills development. This platform was based on the acquisition of Lynda.com in 2015. 

LinkedIn paid over $1.5 billion for Lynda.com, which has become LinkedIn Learning. A key piece of the puzzle for LinkedIn’s business model

LinkedIn has also kept expanding its education offering by, for instance, acquiring (in June 2022) another EdTech company called EduBrite, a platform that specializes in creating, hosting, and deploying professional certificates.

Therefore, the educational journey helps LinkedIn create a clear path for professionals in its acquisition funnel. 

You first join LinkedIn to look for career opportunities, then you’re prompted to join the learning platform and get more certifications so that you can enable HR professionals to understand you might be qualified for a specific job. 

This, in turn, reinforces the value of the professional network, speeding up its flywheel. 

Breaking down LinkedIn B2B Advertising Platform

The other key component of LinkedIn’s business model is its B2B advertising platform. 

In 2022, this has become an over $5 billion yearly behemoth, further expanding. 

In short, LinkedIn offers the opportunity to sponsor products or services with paid advertising campaigns.

With more than 850 million users, LinkedIn is a strong platform that enables brands to build their sales funnels. 

LinkedIn enables brands to build advertising campaigns for both top and bottom of the funnel (from brand awareness to conversions), making into another great option for advertisers. 

With the cost of advertising on platforms like Google and Facebook going substantially up. 

LinkedIn, which has been considered quite expensive from the advertising standpoint, has now become a much more viable option. Thus, gaining momentum. 

Recap of LinkedIn’s business model

LinkedIn’s business model is organized around four pillars:

  • Talent Solutions.
  • Learning & Development.
  • Marketing Solutions.
  • Premium Subscriptions.

Let’s look at each of them in more detail.

Talent Solutions

As specified by the LinkedIn annual report for 2016 (before the stock got delisted as part of Microsoft), the talent solutions comprise:

Hiring and Learning & Development products. Hiring provides innovative recruiting tools to help our customers become more successful at talent acquisition and professional development. Our products aim to be the most effective way for enterprises and professional organizations to efficiently identify and acquire the right talent for their needs. Learning & Development provides online education courses that aim to make it easy for professionals to accelerate their careers and realize their potential by learning new skills.

The Talent Solutions platform can be broken down into:

LinkedIn Recruiter

That allows enterprises and professional organizations to find, contact, and hire highly qualified passive and active candidates based on three main features:

  • Advanced searches (through LinkedIn’s search engine is possible to find any professional profile that comprises a professional network by applying filters to the search
  • InMail service (a service that allows you to message anyone on the platform even if not in your network)
  • Talent Pipeline Management (a sort of dashboard for recruiters that allow them to keep all their leads in one place)

There are other features and products within the hiring process, such as referrals, job slots, job postings,s and more.

The primary business model here is subscription-based, combined with pay-as-you-go, for companies that want to post job offerings.

Learning & Development

In 2015, LinkedIn bought an online learning company, Lynda, for $1.5 billion.

Lynda was integrated into LinkedIn as the learning and development platform for professionals.

In short, subscription members can get access to thousands of professional courses. Thus, this segment of the business is subscription-based as well.

In 2022, LinkedIn further expanded its educational platform with the acquisition of EduBrite, focused instead on professional certification.  

Marketing Solutions

The marketing solution is the part where LinkedIn uses its member’s user base to let other businesses advertise their products or services.

There are six products in this area:

  • Sponsored Updates.
  • LinkedIn Ads.
  • Sponsored InMails.
  • Display Ads.
  • Ads API.
  • Elevate.

The last segment is related to the premium subscription members.

Premium Subscriptions

The differentiation between the subscription-based and advertising models is not as simple as it seems.

In fact, within premium subscriptions, you can access advertising features (like InMail Messages); therefore, even though the LinkedIn business model is mainly subscription-based.

That is more diversified. It is undeniable that part of the value of the professional network comes from the leverage the businesses can make of the LinkedIn members’ base.

LinkedIn in numbers

Back in December 2016, LinkedIn was acquired by Microsoft for over twenty-six billion dollars. As Microsoft CEO Satya Nadella put it at the time:

Today is an exciting day, one I’ve been looking forward to since June. It marks the close of the agreement for Microsoft to acquire LinkedIn and the beginning of our journey to bring together the world’s leading professional cloud and the world’s leading professional network.

Therefore, it’s hard to say in hard numbers how much this integration benefits Microsoft.

Having LinkedIn is more than just a way to generate new revenue streams; but is also a new avenue to “hit refresh” on Microsoft’s brand value.

In addition, given the unsuccess of Microsoft in building a social media tool, the LinkedIn acquisition enabled it to still follow along successfully into he social media space. 

Also, many have argued that one of the reasons for the acquisition was to bring on board LinkedIn’s founder, Reid Hoffman:

Is LinkedIn one of the best acquisitions of the last twenty years?

Before Microsoft bought LinkedIn, the professional network was listed.

When the acquisition was announced, the company’s stock jumped to $195.96 to align with the price of the offer from Microsoft.

It was a premium of over 40% compared to the market capitalization of LinkedIn previous to the announcement; when the acquisition was official LinkedIn also delisted its stock to join Microsoft.

In short, today, if you want financial information about LinkedIn you’ll have to dig into Microsoft’s financials.

In fact, by delving into Microsoft’s financials, there is no doubt that LinkedIn is one of the “products” that bring revenues as you can see from the graphic below: 

microsoft-business-model
Microsoft has a diversified business model, spanning from Office to gaming (with Xbox), LinkedIn, search (with Bing), and enterprise services (with GitHub). In 2021, Microsoft made over $168 billion in revenues, of which over $52 billion came from Server products and cloud services and $39.8 billion came from Office products and cloud services. Windows generated over $23 billion, Gaming generated over $15 billion, LinkedIn over $10 billion, and search advertising (through Bing) over $8.5 billion.

In 2017 LinkedIn’s revenue was $2.3 billion, which primarily comprised revenues coming from LinkedIn Talent Solutions.

In 2018, the revenue surpassed five billion, primarily from the talent solutions offering.

By 2022, LinkedIn passed over $11 billion in revenues, distributed across talent and marketing solutions! 

 

Indeed, as we’ve seen, LinkedIn offers three categories of monetized solutions:

  • Talent Solutions,
  • Marketing Solutions
  • and Premium Subscriptions, which include Sales Solutions.

Talent Solutions comprises two elements:

  • Hiring,
  • and Learning and Development.

Marketing Solutions allows companies to advertise to LinkedIn’s member base.

Premium Subscriptions enable professionals to manage their professional branding.

Where does LinkedIn get its value?

Undoublty, the platform it was able to build serves both hands of the professional industry: HR managers and Professionals.

LinkedIn is a Multi-Sided Platform

Based on the 2022 numbers, this is how revenues are broken down:

linkedin-revenue-streams

As many multi-billion dollar companies, LinkedIn has two main revenue streams 

  • Talent Solutions, over $6 billion, thus more than 50% of its revenues in 2022.
  • And Marketing Solutions, at over $5 billion, thus about 45% of LinkedIn’s revenues in 2022.

Regarding the business model, LinkedIn could be defined as a Multi-Sided Platform.

One of the key aspects of a business model is the customer segment your organization serves. In short, to whom you’re selling your products or services. 

In short, although LinkedIn serves different target customers. They are highly dependent on each other.

LinkedIn gets its overall value by offering services for both HR managers in need of qualified candidates; and professionals looking for career opportunities.

Therefore, LinkedIn hiring would help me find qualified candidates if I were an HR. 

At the same time, the Learning & Development platform allows LinkedIn members to get more qualified. Which, in turn, increases the value of the hiring services as more qualified people are available. 

Summary and Conclusion

  • As of 2022, LinkedIn generated more than $11 billion in revenue. The company has been integrated into Microsoft as of the end of 2016.
  • In terms of the Business Model, LinkedIn focuses on two main patterns for generating revenues: subscription-based (Hiring, Learning & Development) and advertising (Marketing Solutions).
  • The overall platform gets value by integrating those services and serving both the hands of the professional industry (HR managers and professionals). That makes LinkedIn a multi-sided platform.

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