LinkedIn Reaches Out

The upscale networking site is trying to expand and introduce new products without alienating its influential customer base

by Aaron Ricadela

Even as upstarts crowd the online hangout field, and youth-focused sites like Facebook pursue a more professional clientele, social network LinkedIn is swiftly adding customers—and profit—by sticking by its well-heeled user base.

The strategy that's swelling LinkedIn's rolodex of professionals by 100,000 a week will be put to the test in coming months as the company rolls out new features and prepares for an international expansion financed by a $12.8 million influx of financing announced Jan. 29. Bessemer Venture Partners put in the lion's share of the round (LinkedIn's third), and European Founders Fund also took a stake. The venture capital companies join existing backers including Sequoia Capital and Greylock Partners.

The In Crowd

LinkedIn has grown to 9 million members—3.6 million of whom log in at least once a quarter—and attracted blue-chip advertisers like BMW, American Express (AXP), and Virgin Atlantic Airways by catering to an affluent demographic. The average LinkedIn user is 39 and makes $139,000 a year. Of the total, 89,000 are chief executive officers, and nearly half a million others occupy another job in the C-suite, LinkedIn says. In addition, companies including Microsoft (MSFT), eBay (EBAY), Target (TGT), and L'Oréal pay $2,000 to $10,000 a month for the ability to search LinkedIn's profiles for job candidates.

LinkedIn CEO Reid Hoffman tries to keep those influential members around as much with restraint as with the services the site offers. He has shied away from annoying messages meant to increase traffic, says Bessemer Managing Partner David Cowan. "He doesn't send you an e-mail every time something happens," Cowan said. "He's not just trying to aggregate clicks."

So far, the formula has worked. Profit last year reached the single-digit millions and revenue this year will likely be between $25 million and $50 million, and double that amount in 2008, says Keith Rabois, LinkedIn's vice-president for corporate and business development.

New Products

Now, flush with funding, LinkedIn is ready to spread its wings. As it competes with Google (GOOG) and Yahoo! (YHOO) for a bigger slice of the $16.9 billion Internet advertising market, the company will try to capitalize on its users' knowledge base and credentials to develop new products. More money in the bank means more leeway to try new things and see what sticks, Rabois says.

Next month, the company plans to start marketing LinkedIn Experts, a separate site it began quietly testing in December that helps investors and consultants find knowledgeable people in a given field, then arrange hour-long phone consultations for $500. LinkedIn's staff identifies the experts—including some in arcane fields like construction materials in China—and the company splits the revenue with the user whose knowledge is tapped. Each additional hour costs $250.

On Jan. 16, the company launched LinkedIn Answers, which ties users' answers to field-specific questions to their profiles so recipients can judge how much the respondent really knows. That site is due to get an upgrade next month as well.

Room to Experiment

The more experiments LinkedIn can launch without worrying about immediate return, the more data it can collect by watching how users react, says Rabois. "We raised the capital so we'd have the luxury of experimenting," he said. "Having a war chest of capital allows us to take some risk."

LinkedIn also plans to use the new round of funding for expansion in Europe, China, and Japan. Today, the site is only in English, and its search engine for finding contacts relies on Zip Codes—not so useful outside the U.S.