LinkedIn is a product that I initially disliked. But over time, I have made a 180-degree and think it is one of the more astute and useful ones around. I like to think the product has changed (improved) over time, as well. Regardless, I am sure Reid Hoffman deserves a lot of credit for that. Here are his rules for investing, I suggest entrepreneurs re-read these a few times. The funniest part of the article is when he adds “I’m not investing, though”.
1. How will you reach a massive audience?
In real estate the wisdom says “location, location, location.” In consumer Internet, think “distribution, distribution, distribution.” Thousands of products launch every month on hundreds of thousands of new Web pages. How does a company rise above the noise to attract massive discovery and adoption? YouTube did it through existing channels like MySpace, which already reached millions. Yelp had strong SEO, which found them a mass audience searching for restaurants and nightlife. Facebook’s University-centric approach landed them 80% adoption across a campus within 60 days of launch. Every Net entrepreneur should answer these questions: How do we get to one million users? Then how do we get to 10 million users? Then how will you get deep engagement by your users.
2. What is your unique value proposition?
The Internet space is crowded. A product needs to be sufficiently innovative to distinguish itself from the pack, but not so forward thinking as to alienate the user. Many entrepreneurs create incremental improvements on existing products. This can be big – Google revolutionized search when AOL and Yahoo! were presumed to have it locked up – but more often, the pitch sounds like, “It’s a dating site, but for senior citizens…” I want to see innovation that is categorically distinct from existing propositions. Digg lets users decide which headlines are newsworthy. Last.fm tracks music listening with an iTunes plugin and buffer great music discovery. Flickr enables users to share and tag photos in new ways.
3. Will your business be capital efficient?
This may be the most important of the three. Even if you have a mass audience and unique value prop, a business fails without cash flow. An initial round of financing is important, but how reliable is later financing? Will investors see the right elements in the next stage? Your product must scale intelligently – this is why I like software. A well-coded site can adapt to mass demand without its capital expenditures scaling out of control. A product like TypePad can grow to 10 million users without half the growing pains of a service like WebVan, the Web 1.0 startup that attempted to deliver groceries to users’ doorsteps. Try reaching Facebook scale with a service like that.
With these three elements in place – mass audience, unique value, stable funding – a startup has time to discover where it can make money. Few business plans ever pan out like their owners intend. PayPal started as a plan to beam payments between Palm Pilots. Google raised funds with a vision to capitalize on enterprise search and ended up in advertising. The formula is to build an audience with a great product – then secure enough funding to figure out how to make it pay.
read more here. Mind you, a reader is quick to ask: “How do Digg, Facebook, Flickr, Friendster, FunnyOrDie, Ning, Last.fm, Six Apart and Technorati satisfy rule 3″? Hmm… good point, the man’s got a point.
LinkedIn just got its massive $1B valuation from a wide array of investors, and all of it was orchestrated by none other Allen & Co., who is making more and more inroads in West Coast digital media and IT firms.
Interesting to see this video, via Paid Content, of the investors talking about their investment… not surprising, you don’t see anyone from Allen, who stay in the background, as always.
So I get an email by someone… before replying, I search for them and land on LinkedIn. Once there, I am told I might know some other people. I actually do know a bunch of them… but I am not sure that means I should add them as “friends” - or I guess, contacts. I can drive with my feet, too, not sure I should.
Then in the Recent Activity (of my network) I see the following:
Now, I am only commenting on this because it’s public news, but last week, word got out that B5 Media and Technorati were about to merge but that went nowhere. I added some commentary here…
Anyway, it’s worth noting that Richard Jalichandra is CEO of Technorati and Rick Segal is a Toronto-based VC who has invested in B5 Media.
I don’t mean to be a smart ass and rain on everyone’s “open and transparent” hippie love vibe thing, but business would not really get done if everything and everyone is out in the open. Had the news not broke out, for example, and I would have seen
I would not have needed to be a genius to figure out that something was up between the two people, then connect the lines and put two and two together. In the context that Tech Crunch broke the rumor and said “Technorati is looking at buying company X” then it was pretty clear who company X was.
Would the deal have fallen through over a leak? Who knows… but deals have been derailed over smaller things.
What does this all mean? Not much, but at the same time, a lot. I am using LinkedIn to illustrate that social media and all that jazz is a bit like a Pandora’s box… be careful what you ask for it when the genie is out of the bottle.
That’s in the B2B space. In the B2C space, social media affects advertising. My argument, believe it or not, is that as much as LinkedIn helps business connections (and obviously it does), it also hinders it. There’s a reason people don’t release press releases, for example, before a deal is closed. By the same token, I think most of social media’s “benefits” actually hurt advertising.
We might not want to admit it… but ask yourself, if social media sites (which I basically count as UGC sites) were not around, then maybe, just maybe, the sites that would be getting said attention, eyeballs and audience would be in a better position to monetize it.
This all sounds like a crazy comment on a Friday afternoon… but if you think about it, it’s not that crazy. The Web in fact shrinks marketing quite a bit. This does not mean that everyone loses, but by and large, a lot of companies who benefit most from advertising (major media companies) sure will…
We updated our Annual Internet company of the year list. The winner for 2007 was Facebook, who was both the editor’s and readers’ choice. Facebook joins the 13 other companies we had selected from 1994-2006, see the entire list.
Who will be the Web’s company of the year in 2008?
It depends on many variables. The macro environment will affect the outcome, for sure. As more and more companies lay employees off to account and adjust for the slowing economy, expect networking tools like LinkedIn to gain momentum.
Business social networking is gathering steam regardless of the economy, but as people get pink sleeps, the first place they will head will be to LinkedIn to connect with their network, then they will update their resumes. I must admit, I have come full circle on LinkedIn. In fact, I owe an apology to Reid Hoffman and his entire team: LinkedIn is in fact one of the most useful, indispensable tools for business. Mind you, that has a lot to do with the evolution of LinkedIn and the fact that they executed their business plan and became so widely used. But what was a somewhat crass tool has now become a must for entrepreneurs, investors, executives, members of the press and any stakeholder imaginable.
But LinkedIn will remain a niche tool for business types, and net-net, the slowing economy will probably hurt LinkedIn a tad more than it will help it.
Another very niche tool that many will jump at to suggest is Twitter. I do not think Twitter will gain mainstream adoption, and in fact, another company could very well overtake Twitter’s lead. It won’t be the first that a first mover gets surpassed by someone else. Lastly, let’s face it, Twitter is a fringe tool. Blogging is just entering the mainstream, and even there, most of the normal population is not vain enough to narrowcast their lives for the world to see. Sorry, just being candid (though not judgmental, since I am rather open myself).
Speaking of blogging and blogs, a wild card pick I have is none other than Gawker Media. Yes, Nick Denton’s empire did face a reduction in pageviews to close out 2007, but judging by the most recent figures, it’s back up… to record levels.
Either way, as Gawker evolves, they’ll focus on quality of readership rather than quantity. Two weeks into the new year, Gawker has tried to shake up the compensation system in publishing, its Gizmodo blog has been kicked out and banned from CES, and in the context of the macro landscape, in an election year where mainstream media will continue to fail to actually do any reporting, blogs will do well and as the leading blog network and publishing empire, I think Gawker Media will shake the foundations enough to gain mindshare. Case in point, the Tom Cruise video on Scientology that many other media have yanked remains - at least until now - live on Gawker here. I think Gawker Media’s properties and Nick Denton in particular will become an ongoing subject of conversation, interest and fascination… especially given the company’s status as a privately held company.
Of course, it seems unfair to mix technology and media, but that is the future: a meshing of the two as demonstrated by acquisitions of aQuantive by Microsoft and 24/7 RealMedia by WPP. As the world of media and technology mesh, one company seems to be in the lead, and that is Apple. In fact, were it not for Facebook’s awesome 2007, Apple deserves much consideration. I think it will be very challenging for Apple to do more in 2008 than it did in 2007, especially with the launch of the iPhone (which garnered 20% market share) and saw its stock double.
Other companies will be in the news, for sure:
- IAC breaks up into five distinct units.
- Yahoo! will probably face some kind of shareholder revolt, with its stock at a 52-week low.
- Google will have a hard time to maintain its stratospheric rise again. But YouTube remains a shining star.
- Second Life will get its mentions here and there as the virtual world hype train continues and curious mainstream journalists cover the story.
- News Corp. will only get stronger: with Dow Jones under its wings how could it not?
Last year I called Facebook the company of the year as early as April 2007 and it was an easy choice… 2008 is way too premature to call, but those are some of the companies I expect to be in the limelight come end of year.
Who do you think will be the Web’s company of 2008?
Word on the street is that News Corp. is about to purchase LinkedIn. Some time ago I compared TheLadders with LinkedIn, and included News Corp. as one of the many potential acquirers of the business social networking service, but I certainly did not put them atop the list.
I think News Corp.’s Rupert Murdoch wants to get an option on all online assets. He was miffed that YouTube did not go his way and I think that every company on the Web will invariably be seen as a fit with News Corp. for the simple reason that offline, News Corp. spans the globe and all media. Online - after $2B in investments and acquisitions of MySpace, IGN, Scout, Photobucket - Fox Interactive Media is a force to be reckoned with.
The point is: any company can find a home in FIM or News Corp.
In this case, the recent $5.7B acquisition of Dow Jones makes the acquisition of the most popular business social networking site is pretty darn reasonable, especially when you consider just how much operational leverage LinkedIn would give FIM and News Corp.
The main reason why LinkedIn is a good deal is that Rupert Murdoch is aiming for $1B in digital revenues for FIM, the problem is, all of the pageviews and ad impressions on MySpace won’t achieve that as easily as he’d like. IGN, too, is not showing the kind of growth that Murdoch envies. But much like WSJ gave Murdoch the world’s most valuable audience in print (and arguably, online), LinkedIn bolsters that audience and allows Murdoch to leverage his advertiser base to really drive rates and revenues across both his offline and online empire.
This one is smart for many additional reasons:
- Facebook is encroaching on LinkedIn’s turf as a business communications tool (I get more and more business emails off Facebook, which is odd, but to be expected)
- Facebook is encroaching on MySpace’s turf as the leading social networking site, even though MySpace remains gargantuan in size
- MySpace is invariably going to become a bigger commercial platform for merchants
- MySpace is already the leading media and entertainment promotional tool in the world
- MySpace is not really an effective tool for business networking for professionals, and as such, LinkedIn (which would remain separate, I am not suggesting merging the two at all) would complement Fox Interactive Media’s coverage across social networking quite well.
- LinkedIn would really complement News Corp.’s business assets, including Dow Jones’ Barrons, Marketwatch.com and yes, Wall Street Journal’s WSJ.com sites.
All in all, Linked In - who has hinted at an IPO but failed to get Silicon Valley nearly as excited as Facebook - would not cost FIM all that much. I’d say in the same ballpark as Photobucket, which fetched $250M. But devoid of actual financials, I am just guessing.
While the blogosphere’s been having a philosophical orgasm pontificating (P.O.P) between the merits - and future odds of success - of LinkedIn and Facebook, I think a better question is: who will win between LinkedIn and TheLadders.
For the record, I am guilty of that P.O.P myself… but let’s take a step back and examine the two firms that we think are closer comparables: TheLadders and LinkedIn. Admittedly, TheLadders is more of a traditional job board whereas LinkedIn is a professional network, but they target a similar audience.
What is TheLadders?
We are the world’s largest community catering exclusively to the $100k+ job market.
TheLadders.com offers online job search resources and content for the $100k+ job seekers and recruiters. Our specialized job search engines are an invaluable asset to top-earning job seekers in Sales, Marketing, Finance, Human Resources, Law, Technology, Operations, and all other $100k+ fields.
I’d say the audience is even more high-end and upscale than LinkedIn’s, since many junior employees turn to LinkedIn as well. Both companies seem to be doing well. LinkedIn seems more advanced in terms of revenues and it has been eyeing an IPO in 2008.
Of course, being based on the West Coast and founded by uber-networker Reid Hoffman (who rejected my LinkedIn invite… what does that say?), LinkedIn is getting a lot more media and blogger love, but TheLadders does seem to have a far more vertical appeal. Moreover, being based in New York City, I’d say it’s more corporate in nature whereas LinkedIn seems to be lacking profiles in more traditional fields like corporate marketing and finance gigs… In other words, LinkedIn might be the place to turn to for startups, new media and technology outfits, whereas TheLadders would have more traditional business and gigs.
In fact:
Headquartered in New York, TheLadders.com, Inc. is a privately held company offering online recruiting resources to recruiters and job seekers in the $100k+ employment market. Ex-HotJobs.com executive Marc Cenedella founded TheLadders.com in 2003 to address the unique job seeking and recruiting requirements in this underserved market sector. Investors in TheLadders.com include leading venture capital firm Matrix Partners and prominent private investors such as Kevin Ryan, former CEO, DoubleClick; Tom Matlack, Megunticook Management; and Robert Chefitz, NJTC Venture Fund.
I don’t know which company will prove to be more successful, obviously LinkedIn casts a far wider net, but that might prove to be one reason an exit is more obvious for TheLadders, whose business model is - like LinkedIn’s - powered through subscriptions:
Motivated job seekers pay $30 per month to access hand-picked $100k+ postings in their field of specialty; thus streamlining their job search. Employers, meanwhile, post openings at no charge, and are able to reach highly-qualified applicants more easily. TheLadders.com’s fee to job seekers discourages unqualified candidates, while at the same time building a loyal community of serious $100k+ job seekers.
The following is not a knock at either company, but rather a commentary of the state of investors’ moods and appetites: both companies lack a really strong online advertising revenue strategy: LinkedIn generates some ad revenue, Ladders, I presume, absolutely none. That reality means that LinkedIn will have some difficulty getting public investors really excited because investors are advertising-revenue-obsessed. Will it kill its IPO prospects? No. Will it affect it? Yes.
As per TheLadders, it’s probably way too premature to be thinking IPO, but I think an acquisition is very likely and probably. Companies that might be interested include the usual suspects (some of these, obviously, would also look to LinkedIn, but LinkedIn might be too pricey for some of the buyers given its low exposure to online advertising revenue):
- Yahoo! (who could mesh it well with Hotjobs and cover the other end of the professional spectrum after it launched a social network for college students to answer to Facebook rejecting its offer).
- Interactive Corp. has a myriad of businesses and either site would be a good fit, though again, Barry Diller is not a fan of overpaying for assets…
- New York Times is actually pretty strong online, especially for a traditional newspaper company. As it sees its classifieds business getting decimated by Craig “Pol Pot” Newmark (in the eyes of news barrons, of course, we personally love Craig) both online and offline, something like TheLadders (or LinkedIn for that matter) would be a solid fit. In the same vein, Washington Post, Gannett also would be in the running.
- eBay or Amazon, both leaders in commerce and communities could easily see either site as an additional asset in their broader product line in the sense that it extends their product assortment into the lucrative job category.
- Monster, with a $4B market cap is clearly a strong fit…
- Salesforce.com, with a $5B market cap, would be an envelope-pushing, strategic buyer. It’s sounds odd, but hey, that’s why Mergers and Acquisitions gurus are paid the big bucks, right?
- In the same vein, MSFT should not be counted out, because it would give it a database of all “professionals that matter” - this would be cheaper than (forgive me for going there) Facebook but the user base it acquires is far more strategic and important to it defending its software business… and while either deal do little to meet their desire to bolster their online advertising business, who cares?
- Google is the least likely of buyers, but with +$10B in cash, the days of “we build from within” are long over. Google has bought YouTube (despite Google Video), Doubleclick, Feedburner etc. to get into markets fast… and in fact, as I write this, I realize this would be a smart hedge for Google which commands 99.9% of its revenue from online advertising in general and text links in specific. Of course, while we’re at it, Google might also look at Inside and SimplyHired. Jobster, too, comes to mind… despite some HR issues that popped up last year.
There are also many B2B information reselling companies, such as Thomson that could include TheLadders in its repertoire of legal and business information services.
Lastly, let’s not forget companies like GE’s NBC and News Corp. who will always want to get a call from bankers when digital assets are up for grabs.
With news of Facebook considering raising a mammoth round, and LinkedIn founder Reid Hoffman being an investor in Facebook, naturally a buyout of LinkedIn by Facebook is not out of the realm of possibility.
All to say, yes, we included practically everyone… but you can see that this market, too, is headed for consolidation over the next quarter and years.
My first experiences with LinkedIn were up there with my first experiences with Plaxo: lots of unwanted emails.
As I got to better understand what LinkedIn was, I initially thought that it was ultimately a little bit, well, phony. And not in that “Man, that Michael Jordan is so phony” kind of way, in the official, actual sense of the word. I also got a sense that people would add one another and it would in turn devalue the value of one’s network.
Over time - and countless of unanswered and ignored invitations to join someone’s network - I began to blog here at HipMojo.com and once I began to write about LinkedIn, I thought it was a bit hypocritical to criticize it without really giving it a try.
Frankly, there are many things I still see wrong with the service, but for no other reason than remaining in touch with people even after they leave a job (and change email addresses, for example), I now find LinkedIn to be a pretty valuable service.
In the past I’ve written how Facebook was too cool for its own good and LinkedIn was seen as rather sober, and that led a lot of people to drop LinkedIn to be on Facebook exclusively, which in my humble opinion is crazy and insane.
Sure, one day Facebook might offer a more professional system, but people, one is a personal social network and the other is a professional and dynamic address book. In other words, they can coexist and are not mutually exclusive!
Of course, both systems lose their raison d’etre over time. That applies to most successful startups: Digg is arguably what it sought to replace, for example. It’s pretty clear that people now add one another as Friends on Facebook even if they don’t really know one another, meaning that Facebook becomes less of a Database of Connections and more of a popularity contest.
Anyway, the point of this post, however, is to suggest a couple of things:
- A lot of people seem to use LinkedIn and Facebook to show off the number of contacts, which is fine and dandy… but a lot of people prefer some contacts to remain private. I’m not sure how many more old school executives really want their Rolodex brandied about in such a public manner. I would not really care for this option, but I think something like “LinkedIn Private” would be a popular option and lure many more executives to join. In other words, their profile would be public, their connections would not. It might defeat the purpose but from a product management perspective it would win many more users.
Also, something I’d love to have is the following:
- Say I come across a figure, John Doe, that I want to add to my “watchlist” to go back to later but not necessarily add to my network, I should be able to do that. In other words, say I want to pitch someone something, but I’m not ready to do so now… why not simply tag that contact and have a list of to-follow-up-with-people. That should be an option, I’m surprised it’s not. Currently I simply add that person’s profile page to a Favorites/Bookmark folder I created called LinkedIn, but that seems backwards, why not simply add that option?
Anyway, hopefully Reid Hoffman or one of his many lieutenants reads this and considers these two things.
Related:
- An Actually Useful LinkedIn Feature?
- Will Facebook and LinkedIn Converge or Diverge?
- My Wife Left me for Mark Zuckerberg
Facebook was launched as a tool to allow students to connect, today it’s becoming increasingly a social networking tool for all, with people swearing off LinkedIn and MySpace in favor of Mark Zuckerberg’s creation. And then, of course, there’s still the cloud overhanging that matter: a lawsuit that questions how much of it was inspired and allegedly stolen from ConnectU.com.
With increasing talk about Facebook’s exit strategy, one needs to ask: besides the challenge to monetize social networking sites, perhaps the greater questions are:
- what is the shelf life of a social network?
- what happens to secondary social networks if one does amalgamate the market for online profiles?
We’re seeing sites in the video file sharing space branch off to remain relevant in a world where YouTube is becoming the de facto monopoly… will the same thing happen in social networking?
With Larry Ellison’s Netsuite getting ready to IPO, it’s clearly official: 2007 is the year the IPO gets back into the swing of things.
We’ve covered this for over half a year now, Netsuite was already getting its IPO treatment on as early as late 2006, when we first began to ponder over the return of the IPO in an otherwise moribund climate.
With investors so hungry for public offerings, I think $50M is the new $100M threshhold for revenue expectations and that IPOs will replace M&As. Part of that was driven, frankly, by Facebook becoming too rich to sell in an acquisition.
Since Facebook began to target an IPO (in all fairness, Facebook has simply stated “we’re not for sale”, and not “we’re filing for an IPO, but you can read between the lines and deduct your own conclusion), other consumer web media firms have sought the same exit strategy: Quigo and LinkedIn being two more that come to mind.
Paid Content reports on a Globes Online (Israel’s Business Arena) that US and Israeli-based Quigo is looking to seize on investor demand for consumer web media companies, and I guess, the lack of new options. It’s been a few years since Google put IPOs back in vogue amongst consumer firms, but there have not really been many since.
Quigo joins LinkedIn and Facebook as likely candidates to file, either in 2007 for a 2008 float… or by next year.
Of course, nothing says “we’re open to sale talks” like whispering ”we’re going to IPO.” A few years ago, my brief employer IGN did just that: filing in May, selling in October.
Related:
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