LinkedIn's IPO Is Another Step in the Social Takeover of the Web


So, LinkedIn is set to go public in an offering that would place the company's value at $2 billion. Back in the early 2000s when I was at BusinessWeek, I regularly got emails from a then-somewhat obscure entrepreneur named Reid Hoffman plugging his latest startup. Hoffman had made his initial bag of shekels on PayPal and its impressive sale to eBay (EBAY) before launching LinkedIn, a social network designed to foster professional networking.

I was skeptical. Friendster had just blown up after a mountain of hype, and Friendster for business was how I viewed LinkedIn. And so I watched over the years as Hoffman continued to send me emails -- and as his creation continued to grow from the tens of thousands of users into the hundreds of thousands and then into the millions.

About 2003 I joined LinkedIn and realized I had missed the boat on one of the great startup stories of the Internet Era. Today, Hoffman's creation stands poised to disrupt the entire recruiting market as it shifts the focus of recruiting from mass casting calls for resumes to more focused hunts for people with specific skills who are gainfully employed, as often as not -- the Holy Grail of "passive" job hunters that all recruiters drool over.

News of LinkIn's IPO filing helped send shares of leading job-board company Monster Worldwide (MWW) southwards by over 25% in a single session.

Digital Watering Hole

The power of LinkedIn is clearly the capability it affords to users and recruiters alike to peer into organizations, sift through histories, evaluate social ties and, perhaps most important, parse recommendations from peers past and present. Investment companies used LinkedIn for due diligence. Loads of groups converse virtually on LinkedIn in conversations on topics ranging from green tech to boosting sales to small biz.

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A digital watering hole for link-minded folk, LinkedIn also charges users to send messages to people they're not directly connected to. And LinkedIn bills recruiters at a stiff premium to gain unfettered access to its member base.

A nascent but likely interesting part of the company's business is its "connect" platform, which allows users to log into or register for sites across the Net using their LinkedIn credentials. Similar to Facebook Connect but far less widespread, this LinkedIn feature could easily morph into a powerful targeted-advertising network that taps into LinkedIn profiles to finely target ads by geography, title, industry and skill descriptions.

To me, this is the part of LinkedIn that most analysts have failed to account for -- and possibly the part that could generate the biggest scalable revenue growth in the future.

Hard-to-Dislodge Revenue Stream

Should we expect LinkedIn to rival Facebook in its IPO firepower and future growth? Not really. LinkedIn users spend far less time on the site than do Facebook users. Facebook is definitely more woven into the daily fabric of users' lives and more of a dominant force on the Web. The Facebook Connect service is nearly ubiquitous. And LinkedIn doesn't have the same robust ecosystem of third-party applications as Facebook, which has attracted literally thousands of programs specifically designed to function as appendages of the social network.

Regardless, unlike low-cost content farm Demand Media (DMD), which could easily get squashed by a Google (GOOG) algorithm tweak, LinkedIn is well established and has a highly sticky, hard-to-dislodge revenue stream. That makes for a bright future for its shares as LinkedIn continues to play the role of professional networking sandbox for the online set.

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