LinkedIn Can Become Facebook Before Facebook Can Become LinkedIn

LinkedIn Can Become Facebook Before Facebook Can Become LinkedIn

During the early rise of social media, Facebook's similarities to LinkedIn were only skin-deep.

Both are social networks, but one company focused on personal friendships while the other was all about professional networking. The two companies still have entirely different monetization strategies. Facebook's business is built on advertising at 85% of revenue last quarter, while only 23% of LinkedIn's sales come from advertising.

Nowadays, Facebook and LinkedIn are finding themselves more at odds than ever. Facebook has been trying to grow its professional status, and LinkedIn is aggressively expanding into content and launching new social feeds. LinkedIn has just fired another shot.

The professional networker is announcing new Sponsored Updates, which will allow businesses to broaden their reach within LinkedIn's user base of 225 million members -- for a fee. The new Sponsored Updates will be available on a wide range of devices including desktops and mobile gadgets. They're not unlike Facebook's Sponsored Stories, which appear throughout the company's social feeds.

This isn't exactly a surprise considering LinkedIn's recent focus on content. After all, advertising is easily the most common way to monetize content on the Internet.

Growing the marketing business is an incremental opportunity for LinkedIn, and one that shows how asymmetrical its rivalry with Facebook will be. To the extent that LinkedIn can grow its content offerings, traffic, and advertising business, it can compete directly with Facebook for ad dollars. Meanwhile, its core business of connecting recruiters with job candidates is somewhere Facebook can't venture.

Facebook has reiterated countless times that it will never impose a membership fee, greeting prospective new Facebookers with the assurance that "it's free and always will be." Facebookers also loathe the idea of the social network selling their data to advertisers, although that probably doesn't dissuade most people from using the site.

In those two ways, LinkedIn has advantages. LinkedIn members want the company to sell their data, because they might end up with a better job, and many users find enough value to pay membership fees. Recruiters pay handsomely for an efficient way to find talent. LinkedIn gets to play both sides of the matchmaking, while Facebook users have no particular interest in hooking up with advertisers more than they already have to, and Facebook's had limited success at cracking the professional segment.

LinkedIn is still much smaller than Facebook in terms of users, revenue, net income, market cap, and many other metrics. LinkedIn also trades at much higher premiums, but its business is much more sustainable than Facebook's.

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Fool contributor Evan Niu, CFA, owns shares of LinkedIn. The Motley Fool recommends and owns shares of Facebook and LinkedIn. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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