The case for LinkedIn over mighty Facebook

The professionally orientated networking site has quietly thrived on Wall Street, where shares have gained on a belief that demand is strong for its all-business approach.

California-based LinkedIn has its sights on virtually taking over the highly lucrative online jobs and recruitment market. David Paul Morris / Bloomberg News

While Facebook struggled last year, LinkedIn, a business networking site purely for professionals, had its revenue, profit and share price surge by about 80 per cent.

The first quarter of this year resulted in further stellar results. And despite a slightly disappointing second quarter, LinkedIn looks set to be "the new Facebook" as far as a growing number of investors is concerned.

Facebookhas made little progress in entering the highly lucrative jobs and recruitment market. By contrast, LinkedIn has its sights on virtually taking over the industry.

"Facebook has little credibility as a professional network. It's a place to connect with friends, not business professionals," says Kim Celestre, an analyst at the international research company Forrester."Even with its launch of job boards, it has a very long way to go to catch up to LinkedIn."

And the market for online business networking and recruitment could be even higher than LinkedIn's rapid growth might suggest.

"LinkedIn has only scratched the surface in terms of attracting corporate customers, jobseekers and marketers," says Michael Pachter, an analyst at the research company Wedbush:

At the end of March, LinkedIn had 18,000 customers for its premium business services. But with an estimated 27 million small businesses in the United States alone, Mr Pachter believes that LinkedIn still has major growth potential.

"As LinkedIn grows its footprint ... it is plausible that the company could attract as many as 200,000 to 300,000 paying corporate customers a month, with high churn rate as some businesses will need LinkedIn's services for only one or two months," he says.

A minimum fee of about US$10,000 a year collected from 200,000 constantly churning small businesses would add $2 billion to LinkedIn revenues, says Mr Pachter.

"We expect the number of jobseekers to increase as the success of LinkedIn's premium solutions becomes more apparent and its reach expands."

But Facebook is still much bigger than LinkedIn, with more than one billion active users and more than $5.1bn in annual revenues. LinkedIn, in contrast, has 202 million account holders and revenues of $972 million.

But with more than 200 million members worldwide and with visitors to the LinkedIn website viewing 67 per cent more pages in 2012 than a year earlier, market-watchers believe that the company's strategy of adding more business news and career advice is paying off. There is also evidence that LinkedIn intends to extend this service. In April, it paid $90 million to acquire Pulse, which makes an electronic reader that is used on mobile devices. Over 30 million people worldwide use Pulse on devices running mobile software from Apple and Google.

The San Francisco-based company was founded in 2010 by Akshay Kothari and Ankit Gupta while they were students at Stanford University. Pulse employees will join LinkedIn at its headquarters in California.

"The company will use Pulse to drive engagement further, with LinkedIn attempting to become the default location for all career-related content," says Mr Patcher.

LinkedIn has already turned the world of recruiting and hiring on its head. As more people post their CVs on LinkedIn, headhunters are increasingly using the site to identify potential employment candidates, often approaching people who are not actively looking for a new post.

Professional users of LinkedIn are regularly sent lists of new job vacancies best suited to their experience and skills.

Since its initial public offeringin May 2011, LinkedIn's share price has quadrupled. In stark contrast, Facebook's share price has fallen to about $27 from an IPO price of $38 last May. "This showcases the weakness of a one-size-fits-all market approach," says the Silicon Valley-based analyst Rob Enderle. "You can lose your market to large targeted services like LinkedIn, which focus more tightly and thus generate far less noise."

LinkedIn can offer some users a more worthwhile proposition than Facebook, which remains a primarily social space. There is also growing evidence of wariness among Facebook users about leaving a permanent digital trail of their social lives and the potential embarrassment should an employer deem their profile to be frivolous or inapropriate.

LinkedIn, however, provides users with a strongly defined personal profile available to colleagues, business contacts and potential employers.

"LinkedIn currently, over a narrower band, provides a far stronger return for the time spent than Facebook does and users are shifting their efforts to favour that service over Facebook as a result," says Mr Enderle. "Facebook, to respond, should segment and target their service, but I don't think they understand the threat and are thus very slow to respond to it."