01 August 2017 14:43:55 IST

A management and technology professional with 17 years of experience at Big-4 business consulting firms, and seven years of experience in high-technology manufacturing, Rajkamal Rao is a results-driven strategy expert. A US citizen with OCI (Overseas Citizen of India) privileges that allow him to live and work in India, he divides his time between the two countries. Rao heads Rao Advisors, a firm that counsels students aspiring to study in the United States on ways to maximise their return on investment. He lives with his wife and son in Texas. Rao has been a columnist for from the year the website was launched, in 2015, and writes regularly for BusinessLine as well. Twitter: @rajkamalrao

Is LinkedIn’s utility waning?

Despite its premium service and subscription model, the networking site is making losses

Everybody loves LinkedIn. It is the one social network that is solely built on human hope that maybe there’s a better job or opportunity out there somewhere. In this sense, it is representative of the times we live in.

People who are secure in their jobs or businesses are not likely to be on this site. You don’t see someone employed at an Indian bank or in a central government position on LinkedIn. These people are happy where they are and have little reason to connect with complete strangers.

And there are millions who are on LinkedIn, but are not active users. These people are likely satisfied with their careers, or find the cost of switching jobs too high for reasons unrelated to their careers.

Choosing the network

It is this paradox that has driven the platform since its founding in 2003 — LinkedIn wanted people to share details about their work lives. Facebook was what you used when you got home.

Both apps rely on the ‘network effect’ for success. This is when something becomes valuable to you simply because others are using it. And with LinkedIn, this is even more so. If most of your professional friends are on the site, and your entire engagement with it is based on hope, you are bound to sign up.

Much like Facebook, LinkedIn showed off its growing membership pool as a metric to gain even more members and investors. When LinkedIn went public in 2011, it was valued at an eye-popping $4.25 billion, largely for being a repository of users’ resumes.

With the world recovering from recession, many people signed up looking for jobs, and membership steadily rose. Currently, it stands at nearly 500 million members. Along the way, it added bells and whistles, like public endorsements of skills, news-feeds and articles by members. But most of these have only minuscule utility value.

The comparisons

When you compare numbers of the two platforms, the differences are stark. Facebook has nearly four times the number of active users as LinkedIn, at nearly 2 billion people, and its profits for 2016 were a staggering $10 billion. In contrast, LinkedIn in 2015, after being in business for over 12 years, reported a loss of $166 million on $2.9 billion revenue.

The main reason, of course, is the way LinkedIn makes money. For a site that most of us do not visit regularly unless prompted by a teaser email — ‘Look at who viewed your profile!’ — selling display or targeted ads on the site based on interests is a meaningless proposition.

Most LinkedIn users do not have the authority to buy for their companies, so what can an advertiser hope to sell? Because LinkedIn is a professional site, it would not help if it allowed for consumer ads, such as for women’s apparel or men’s shoes.

The subscription model

So, LinkedIn relies on a subscription model to generate revenues. It opens up its vast treasure trove of user-updated resumes to headhunters and salespeople — two groups of users who are extremely active on the networking site.

There are users who too are looking for that next lead in the never-ending zero-sum rat race, of placing their next candidate, or finding a buyer. LinkedIn is their lifeblood and offers a clubhouse view into the global game of professionals, all accessed from the comfort of their desktops.

As companies in the media industry know, generating revenue through subscriptions is an awfully hard sell because people are used to getting things for free. For LinkedIn, the problem is that there are not enough headhunters and salespeople to pay all the subscription revenues.

The premium service

Which is why the site aggressively promotes its ‘Premium Services’ to everyone. ‘25 people viewed your profile in the last 30 days’, says a teaser, displaying three names and ‘one LinkedIn member’. ‘Unlock the rest of the list with Premium’, the pitch ends, harping on that basic human trait of narcissism — we feel so valued that someone else took out their precious time to examine our profile, unbeckoned.

Premium Services may be a great deal for LinkedIn because it already has the information that it wants to show to you — all it needs to do is to lift the veil. But as a user, it is a bad deal for me because uncovering the name of someone who viewed my profile does not increase my chances of getting that job I was dreaming about.

In this hyper-connected world, if someone really wants me, they will find a way to contact me. We all leave digital footprints everywhere we go and for most people, obtaining a person’s twitter handle, phone number or an email address is simply a Google search away.

Most LinkedIn users are smart enough to realise this, which is why they do not sign up for Premium Services. If even a third of LinkedIn’s user base did, it would have reported annual revenues of $25 billion — and profits of nearly $25 billion, since the marginal cost to LinkedIn to unlock information it already has is minimal. For the record, as was mentioned before, LinkedIn’s 2015 revenue was just $2.9 billion, with a loss of $166 million. For the quarter ending March 2017, the company posted a $386-million loss on revenues of $975 million.

Microsoft acquisition

Despite all these problems, Microsoft, under the able leadership of Satya Nadella, paid a whopping $26.2 billion to buy LinkedIn. Microsoft’s rationale was that LinkedIn would somehow integrate into its cloud strategy so that it could sell its Office 365 product to LinkedIn’s 500 million members.

For Microsoft, which is sitting on a pile of cash, the money it paid would have generated $1 billion a year in interest alone if left in a bank which yields a 4 per cent return. Never mind that nearly every LinkedIn member is probably already a Microsoft Windows or Office customer.

Nadella is certainly a whole lot smarter than many of us, which is why he saw value that the rest of us did not. But nearly 18 months after Microsoft’s acquisition, I do not see any improved value as a LinkedIn user.

And I have not yet seen any bold claims from Microsoft about how crucial the acquisition has been to its global strategy. Then again, many large technology acquisitions put together by geniuses — Verizon-Yahoo, Facebook-WhatsApp, Microsoft-Nokia, Microsoft-Skype, Time Warner-AOL, Google-Motorola, Alcatel-Lucent, HP-Compaq — ended up not living up to the initial hype and are now disappointing duds.