Today Headhunters, Tomorrow Insurance Salesmen: Effective Data Mining at LinkedIn
LinkedIn (LNKD) is selling new tools that allow sales professionals to see your profiles on its pages, and some of you are sure to whine about privacy violations as a result. But shareholders should welcome this intrusion. It represents just the sort of savvy marketing that makes LinkedIn a much better long-term investment than Facebook (FB), the other popular website feeding off of your personal information.
Both companies make money by selling information from members who are using their services for free. But compared to Facebook, LinkedIn has a particularly sophisticated understanding of both what’s in that data and what kind of customer needs it. By satisfying this first rule of marketing -- identify, very specifically, your market – LinkedIn has leapt light-years ahead of Facebook on the road to share-price-building profitability. A stock chart suggests that investors have grasped this.
LinkedIn’s year-over-year revenue growth runs about 80% now, compared to Facebook’s 32% gain. Underlying earnings are up this year too, compared to a precipitous drop in Facebook’s profits.
LinkedIn’s success so far comes largely from the corporate recruiting industry that pays to mine its user profiles. The industry is willing to pay steady subscription costs for the privilege, which offers them the unique ability to find and to solicit professionals that aren’t actively seeking new jobs. It’s a generally safe sale on the privacy front since most people are flattered rather than annoyed by someone who wants to talk to them about a possible job. The growth potential for the business is considered astronomical, particularly should hiring ever return to pre-recession levels.
LinkedIn’s new sales tools promise to be equally lucrative. Some 60 million or so sales professionals are already members on the site. With subscriptions averaging about $50 a month, they can now identify prospects by title within a company; read their profiles for common connections before contacting them; and follow their LinkedIn-postings even without making contact. They can broaden their pitches by linking with everyone within a company that might have an interest in the product, not just the official point-of-contact. While the service may be more controversial – no one puts his resume on LinkedIn to get a sales call – the potential for growth is vast. Like the options for recruiters, LinkedIn’s vast database makes its sales tools unlike anything a competitor can offer.
Facebook has a vastly larger database but a lesser grasp on what’s in it. It has struggled to identify the advertiser that most needs (and will therefore pay up) for its product. On the one hand, I have an ad at the top of my Facebook page for a tool kit I searched for off-Facebook yesterday, which seems a particularly savvy match. (I have no idea how they do that.) On the other hand, most of the ads on my page are clearly aimed at someone who weighs considerably more than I ever have. Advertisers seem to understand the disconnect, and it shows in profit margins.
Privacy issues? Both companies will dance forward and back as they try to maximize the amount of data they can collect without scaring away their users. But long-term, their success depends largely on old-fashioned marketing; the ability to connect a customer with the product (in this case, user information,) he needs. LinkedIn connects corporate professionals with sales reps and recruiters. Facebook connects a lightweight with weight-loss companies. I know which service I’d pay more for.
Dee Gill, a senior contributing editor at YCharts, is a former foreign correspondent for AP-Dow Jones News in London, where she covered the U.K. equities market and economic indicators. She has written for The New York Times, The Wall Street Journal, The Economist and Time magazine. She can be reached at firstname.lastname@example.org.