Business Model Generation- LinkedIn
Business Model Generation- LinkedIn
Section 1
The social media space was innovated when LinkedIn brought the concept of being connected virtually while maintaining a strong and networked professional identity. Touted as the world’s largest professional network over the internet, LinkedIn boasts of more than 162 million users worldwide with its uniqueness embedded in a multi-sided platform operation giving its users the facility of a variety of solutions under different categories.
The analysis of business model of LinkedIn and contributions from different business and management aspects to this model have been deciphered using the Business Model Canvas as innovated and introduced by Osterwalder & Piguer (2010). As a tool with nine major business heads to be analyzed, the Business Model Canvas helps the clients as well as the strategy formulators to understand the nuances of operations of a business.
The nine building blocks in the Business Model Canvas as mentioned above help in the identification of customer segments, their relationships with the business, the propositions in terms of value that the business is making to the end users, the cost structure of the business, its logistics and distribution network, etc. Detailed analysis of LinkedIn business model based on these aspects of its business model canvas (Appendix 1) are discussed below:
Key activities: this blockhead emphasizes the uniqueness of LinkedIn's main business. It not just a job search or classifieds website. It helps people connect with other people. As such, it is a professional and innovative recruiting business with the potential for more.
Key resources: LinkedIn utilizes the revolutionary technologies. It follows the current trends and capitalizes on them. Today, search capabilities are evolving from analyzing directories into networks. LinkedIn utilizes this new technology in the same fashion as eBay. Ebay is much more than an online business of classified ads. The distinguishing feature of eBay that contributed to its explosive popularity is that it utilizes a network. Among other things, this allows for histories to be seen. Ebay harnessed this value by adding network capabilties to online classifieds. LinkedIn harnesses the capability of job search sites by adding network capaibilities.
Key partners/Partner network: this blockhead comprises ventures or alliances with networks, user groups, businesses or similar other start-ups that support the business activities. Being operational in the virtual space, key partners for LinkedIn comprise content, application and software developers that constantly maintain and upgrade its website, related content, advertisements, graphics and others. Its key partner Equinix manages the data center facilities at LinkedIn.
Value proposition: In today's professional job marketplace, the way people conduct professional searches is inadequate. Consider three important business problems routinely faced by organizations: sourcing job candidates, reaching professionals, locating providers of services. With existing technologies,accomplishing these tasks is time consuming and difficult. The key problem here is that buyers and sellers often have access to different information and this heightens risk and can often lead to rigged trades. Using current technologies such as yellow pages, old style resume databases and directories, there are asymmetries in participation rates based on incentives. Yellow pages have no public vetting system to verify the quality of candidates. With old style resume databases, most of the quality talented professionals would resist participation in order to safeguard their own personal brand and or they simply had no need. Likewise, talented professionals in directories tend to only want to participate if other talented professionals are already participating.
How do you make a central platform where talented professionals can be located, can join and can be contacted? Our solution is through a social network. Through a social network, the reach is both impersonal and personal. Friends, friends of friends will join and participate and this will lead to more people joining. It will also encourage participation through reputation, creating synergistic opportunities for incentives to morph and grow.
Customer segments: are the different categories of users targeted and maintained by a business. Due to the fact that LinkedIn operates in virtual space and is primarily a professional networking website, Internet users, recruitment agencies, content and application developers and marketers and advertisers are its main customer segments.
Channels: this blockhead comprises the channels in marketing and distribution in order to facilitate the delivery of products and services of a business. For LinkedIn, its website is its primary channel with which it allows millions of users to stay networked. In addition to this, mobile applications for greater connectivity and mobility and field sales are the other channels that enhance the reach of LinkedIn.
Customer relationship: this blockhead underscores the value LinkedIn offers to customers by harnessing the free access of site membership common to the internet today. LinkedIn follows in the same line as eBay's highly successful model that offers everyone who signs up a free profile, and only charges for graduated or premium subscription based services. As a consumer internet company, LinkedIn has revenue and non-revenue generating customers, each whose presence achieves and retains value. The highest dollar revenue product LinkedIn offers is in fact subscriptions, including individual user account profiles as well as for enterprises and small businesses. Customer relationship management is of primary focus.
Cost structure: this blockhead reveals the areas where costs are incurred. Majority of the costs are utilized in the development of data centers, the web or the user interface and the supporting technological infrastructure and applications. Other significant costs include administration costs, product development costs, sales and marketing costs and human resource management costs in terms of salaries.
LinkedIn's professional network will rely primarily on three streams of revenue. Targeted Ads will establish revenue streams using the same function as Google Adwords. Contextualized advertisements will persist on each user's profile. Paid job listings by corporations and companies will route through each person's professional network and personal network. We will also offer a fee-based subscription service that will unlock and extend the capabilities of each person's individual network subscription service. LinkedIn's platform is valuable because it is modeled to enable revenue.
Section 2
LinkedIn’s Business model is considered the best in terms of virtually spaced monetization strategy. While other prominent players such as Twitter and Facebook rely on advertisements and sponsorships alone, LinkedIn enjoys high monetization due to huge revenue generation as its users get attracted for its value proposition of enhanced career growth and networking resources (Mahadevan 2010). While the users feel reluctant to pay even a nominal fee for Facebook account subscription, members are ready to pay for LinkedIn advanced services since it gives them better visibility in the professional network and also helps them gain valuable insights (Clemons 2009).
However, despite the above-mentioned strengths, LinkedIn inherently lacks in some of the key areas as identified by Kumar (2014). The author posits that in Freemium business model, it is difficult to choose which services to offer for free and which ones to make paid. If the anticipated number of free users is not turning into paid subscribers, it means that the free offerings are too rich. Secondly and especially in the case of LinkedIn, the demarcation between free and premium account is not clearer. For example, if a free user wishes to get the information and details of his former colleagues, he needs to get upgraded while an official networking desire may not urge this. Hence, the need to upgrade is not obvious in such cases.
Further, it is also signalled that being a first-mover in the freemium professional space, LinkedIn gained fast and easy access to millions of users worldwide but late in its user conversion cycle when the users will see lesser value added to the offerings or would turn price-sensitive, the monetization rate for LinkedIn would decline. In the long-run, a free subscriber may bring several others referrals that may turn subscribers. Hence, satisfied users are important to be identified.
With the above-mentioned clauses, LinkedIn is proposed a new business model based on the customer-driven innovation approach wherein new customer needs are fulfilled through better access or increased convenience (Slywotzky 1999). Being a life cycle based business model, the ideated innovation for LinkedIn would take place at the left had side, which is centered on efficiency and transformation of activities, partners and resources. With this, new relationships will form and the value proposition would change to add more services to make the premium offering more valuable and attractive. With these suggestions, the changes in the ideated business model for LinkedIn would be (Appendix 2):
Key partners: free subscribers should be turned into business evangelists who bring even more subscribers that finally turn into paid ones. In additional, this Distribution network, Service providers also work with key partners.
Value propositions: the motto of a freemium model of ‘customer acquisition’ should be changed to that of a customer retention and revenue generating one. In order to do so, the value of premium bundling of products and services should be enhanced.
Customer segments: free users who bring substantial revenues in terms of adding on new members and bringing more subscriptions would be considered a new customer segment with close monitoring, loyalty rewards and increased offerings in their free account.
Customer relationships: the above mentioned new customer segment would have to be collaborated well to identify ones who have strong professional network, bring more members but are using LinkedIn services for free. They should be converted into an upgrade account.
Revenue streams: with better value proposition, increased number of loyal users and more subscriptions, the revenue streams for LinkedIn would ultimately enhance and LinkedIn’s commitment to business innovation would also be established.
References
Clemons, E.K. (2009). ‘The Complex Problem of Monetizing Virtual Electronic Social Network’, Decision Support Systems, Vol. 48, 48-56.
Kumar, V. (2014). ‘Making “Freemium” work’, Harvard Business Review, May.
Mahadevan, B. (2010): A framework for Business Model Innovation. Bangalore: Indian Institute of Management
Niu, E. (2015). This company has the best business model in social media. Retrieved Jan 16, 2015 from http://www.fool.com/investing/general/2015/05/20/this-company-has-the-best-business-model-in-social.aspx
Osterwalder, A and Pigneur, Y. (2010): Business Model Generation. New Jersey: John Wiley & Sons.
Slywotzky, A (1999). ‘Value Migration – How to Think Several Moves Ahead of the Competition’ Harvard Business Review, 2nd Edition.
Kashmer, DM (2015) Business Model Innovations – In Surgery From http://bmimatters.com/tag/business-model-canvas-examples/
Appendix 1: LinkedIn Original Business Model
Appendix 2: Appendix 1: LinkedIn Original Business Model
