LinkedIn’s Greatest Assets
LinkedIn, the professionally-oriented online social network, was acquired in 2016 by technology giant Microsoft for $26.2 billion. Although Microsoft was partly motivated by LinkedIn’s top-notch talent and intellectual property, the vast majority of this price tag can be attributed to the firm’s network of customer relationships and brand. At the time of its acquisition, LinkedIn had a registered user base of about 430 million individuals, with about 106 million unique monthly active users (MAU).
Like many technology firms, LinkedIn gets value from its ongoing customer relationships in multiple ways. Firms often achieve this value through paid subscriptions, targeted advertising, and the sale of user-generated data to outside parties. LinkedIn is no exception. The network sells paid subscriptions that offer premium features like enhanced personal profiles and priority ranking in hire recommendations to job recruiters. For advertisers, LinkedIn can provide finely targeted ads based not just on demographic information, but also on site-specific insights like users’ personal interests, career aspirations, and social connections.
In an industry where major acquisitions (like Facebook’s purchases of Instagram in 2012 and Whats App in 2014) typically involve valuations of less than $50 per monthly active users (MAU), LinkedIn weighed in at over $250 per MAU. This exceptional valuation can be attributed to three unique benefits of LinkedIn’s customer relationship management model.
First, one of LinkedIn’s key sources of revenue is helping corporate recruiters connect with potential hires. The network’s large active user base offers a value proposition for both sides of the job market. Because LinkedIn is the go-to site for job seekers, it is highly attractive to recruiters. Likewise, the large presence of recruiters from top-level firms across many different industries makes LinkedIn equally attractive to job seekers. This self-reinforcing cycle makes current customer relationships a key asset for securing future customers.
Second, LinkedIn’s existing customer relationships and brand equity allow for quicker rollout and adoption of new offerings. When it sells new products, the firm starts with direct access to millions of engaged users. For example, LinkedIn purchased the professional-skills training provider Lynda in 2015, gaining ownership of its large catalogue of training courses and videos. Because this content was directly relevant to those on the LinkedIn network, LinkedIn was able to sell Lynda products to millions of users.
Third, LinkedIn’s active user base provides a vast, ongoing stream of data that can be leveraged for Microsoft’s other core products. A prime example of this is Cortana, Microsoft’s machine learning and artificial intelligence offering. Because the Cortana software is built around machine learning, its functionality depends entirely on having access to vast amounts of data. The continuous stream of data from LinkedIn’s users helps Microsoft’s offerings such as Cortana become more profitable.
Questions:
What are the three key aspects of LinkedIn’s customer management approach?
What new customers might Microsoft target with the data it has acquired and will continue to acquire from the LinkedIn acquisition? What types of companies would be most interested in this data?