Last weekend the following article appeared in the San Francisco Chronicle. I have been asked to be a part of a discussion on Social Media and I believe it is important to know the boundries between the purely social and the business oriented social media platforms. The big pure social networks are MySpace and FaceBook. Classmates is an "old school" network in that it still requires you to pay a membership fee to be active.

According to this article, LinkedIn is #4, adding a new member every second, 24 hours a day. Read more:

LinkedIn CEO touts growth of network

Sunday, November 23, 2008

When Dan Nye joined LinkedIn last year, he knew the company had a viable product - it was his own posting on the professional-networking site that helped land him the job after it was spotted by founder Reid Hoffman.

Since leaving Advent Software and taking the helm of LinkedIn in February 2007, the 42-year-old has shepherded growth in all aspects of the service. Membership has swelled from 8 million to more than 30 million, while the staff has expanded from 60 to 370 employees.

And, the site is making money. Although as a private company, LinkedIn doesn't release dollar figures, Nye says it's been profitable for several years. Reports place that revenue at $100 million for 2008, up from $10 million at the end of 2006.

In June, the company raised funds at a $1 billion valuation.

According to Nielson Online, LinkedIn of Palo Alto was the fourth-fastest-growing social-networking site in September, behind Twitter.com, Tagged.com and Ning - and ahead of Facebook.

Meanwhile, it's the fourth-largest social-networking site, following Myspace.com, Facebook and Classmates Online.

Nye recently sat down with several Chronicle Business section staff members to discuss the future of the site, which plans to remain independent, and how it's faring in the troubled economy. The interview has been edited for length and clarity.

Q: How have things changed since you became CEO of LinkedIn in February 2007?

A: When I joined, we had 8 million members in the network, and we had 60 employees. We now have over 30 million members. We have 370 employees, and we're currently adding new members at one per second, 24 hours a day, seven days a week.

What's most gratifying is seeing the success that people are having on the network. There are just amazing stories about people making money, finding opportunities, getting advice, avoiding disasters from reference checking, reconnecting with important people in their lives, getting introductions, getting access.

Half the members are outside the United States. All industries are represented, all fortune 500 companies, over 3 million small-business owners.

Q: What did you expect to happen when you joined LinkedIn, and have your expectations been met?

A: It was a small company with huge vision and great ambition. And when (founder) Reid (Hoffman) and I talked about what we could possibly do and where it could go and how big it could become, we were talking in a range that we have far exceeded.

We raised money at a billion dollar valuation in June. We've just raised more money. When I look at the slides I put together when I first joined the company, I expected us to have 26 million members in the network by the end of 2008, and we're actually going to have close to 35 million. I thought we were going to have about 200 employees by now, and we have well over 300. I thought that the revenues would reach one stage; we far exceeded that as well.

Q: You raised money in June, and then you said you've had another round more recently?

A: Yeah, so we've had four fundraising rounds. The first round was Sequoia Capital, the second was Greylock, the third was Bessemer Venture Partners, and that's right when I joined. The fourth was Bain Capital. We kept the round open in order to take money from strategic investors, and we just took that from Goldman Sachs, SAP and McGraw Hill.

Q: Could you say how much money came in?

A: $22.7 million. That was the follow-on. So 53 and 22.7 is $75.7 million.

Q: Do you see yourself needing more capital in the near term?

A: There are three things that are really important to understand about LinkedIn relative to its financial position. One is that we have a very strong balance sheet from having raised this money.

We actually never touched the series C money and then we went and raised more money. We also have a very strong revenue stream. Our revenues this year are up well over 100 percent over last year, and we are forecasting to continue to grow the revenues. We turned a profit in 2006 and we are running the company right at the line. So it sort of depends how the fourth quarter goes to know how the year ends up.

The third thing to know is that our businesses are built on top of a very active and fast-growing network, and a network, frankly, that has become much more important in a recessionary period where people are realizing, "You know what, connecting with people I know and reaching out and learning how these Internet tools are used and presenting myself so that I can be found on the Internet is valuable and important."

So we are not in need of cash, for any reason, and we have the cash to weather whatever storm we all face and to make acquisitions when we see ones that are attractive to us.

Q: Can you be specific about weathering the storm? Can you look forward and see how long you can last with your current money?

A: Forever, so long as we're not losing money. There are rules of thumb on how much cash you need to have. Ours is decades and decades.

Q: A strong growth rate is the envy of most every company, and it's also been the undoing of many companies. Scaling is the issue, and you've got to be able to manage it. What can you tell us or our readers about how you're doing?

A: There are many aspects of scaling. One is making sure that you're embracing and pursuing the opportunity and you're choosing to grow. And I think much of 2008 was about that. We were recruiting and attracting the very best talent from the very best companies in the valley.

So we have a very strong and significant engineering and operations team. We are building a second data center, so then there's the scaling of the site itself. We're bringing our second data center online right now and working through all of the balancing issues and the ways to make that work.

That's happening at a time when there's great demand on the system. We hired a vice president of technical operations from Google. And we have a great engineering team and operations team that is building the site to perform. I have confidence that what we're doing is working. It certainly has been working, as we have had to meet the needs of 1 million, 8 million, 20 million, now 30 million.

Q: Can you put a dollar figure on revenue?

A: We actually don't talk about the dollar figures. There have been reports in the press about the revenues being between $75 (million) and $100 million.

Q: Is that reasonably accurate?

A: I'm not denying it.

Q: And that's up from $10 million in '06, from our research, is that about right?

A: Yes.

Q: What are the proportions of your revenue stream?

A: We have four revenue lines and we just announced a fifth. One is advertising. The thing that's great about advertising on LinkedIn is if you have a limited budget, LinkedIn is a tremendous place to spend those dollars because of the quality of the demographic.

It's a professional network without a lot of the noise and nonsense. And you can target the ads to people by what industry they're in, what seniority level they're in, what geography they're in. It's a very, very efficient and effective form of advertising. The types of companies that advertise on LinkedIn are Bank of America, Dell Computer, Hewlett-Packard, Radisson Inn, Southwest Airlines, Porsche, BMW, Nissan or Mazda, etc.

The second is online subscriptions. And that's where members are buying access to more of the site. It's a particularly important and valuable service right now, as we have so many job seekers trying to leverage their networks. And so online subscriptions is another meaningful and valuable business for us.

Then there are the job postings, where individuals can pull out a credit card or corporations can post jobs, and it's great because the job seeker can find a job and see how they know somebody who posted it, or they can reference-check the company or the poster to know if that's a place they really want to be.

And then the fourth one is corporate sales, where we sell seats of LinkedIn into corporations, and that's primarily used for recruiting. The corporation owns the seat. So it's not just a LinkedIn subscriber, where it's tied into an individual account. It's the corporation's account, and they can take notes on candidates and all the recruiters can coordinate so that they're not reaching out to the same individual for a position. It's a separate interface that sort of rides on top of LinkedIn.

And the fifth business line that we just announced is LinkedIn surveys. We can go put together a panel of thousands of people who will fill out a 20-minute survey. And that's an exciting business for us and very unique and scalable.

Q: Can you describe your typical user?

A: The typical user is difficult to define, but I will tell you the demographic. The average age is 41 years old. The average household income is $109,000; 76 percent of them have a college degree or a graduate degree. It's pretty evenly split between men and women, slightly more men. Forty-eight percent are outside the United States. We're the largest network in Western Europe, and we're very strong in all English-speaking countries, as well as countries that have lots of commerce with the English-speaking world. We just launched a Spanish version of our site as well.

We're growing really fast with young people right now who are seeing the importance of participating in this professional network and understanding how it's different from a social network.

We're seeing great growth from small-business owners because they're seeing how they can attract clients and reference-check vendors and candidates and things like that. And we're also seeing tremendous growth inside of corporations and certainly with executives. Education is a very fast-growing market for us right now.

Q: How do you vet how members are portraying themselves?

A: There are many governors built into LinkedIn to make sure that the quality stays high. Let me give you some examples. If a person sends you an invitation to connect, you can accept the invitation, you can press a button that says I don't know this person, or you can press a button that says "archive." The "I don't know" button means this person just sent me an invitation to connect and I don't know them, and if five people do it, then in their account they have to include an individual e-mail message to send an invitation to connect. So that stops people from spamming just to build connections.

Another example is if somebody puts up a photo that is inappropriate. LinkedIn doesn't have photo sharing, it has one professional photo. If somebody were to put up a swimsuit picture or something like that, there's a little button next to the photo that says "flag this photo." It goes to our customer service team and the photo comes down and then they review it and determine whether or not it should stay up.

Now, the other reality is when you get 30 million people interacting with one another, there are going to be people who are going to play games or use it in an inappropriate way. And so we have the ability to flag a profile and our customer service team just takes it down.

Q: I'd be interested to know who you believe your competitors are. There's a whole lot of social networking going on out there, and there's a call for consolidation. You can't be in 17 different networks.

A: I actually think that what we're trying to do is focus our competitive juices on enlightening people and helping people who are not participating in a professional network, to understand the importance. So if we maintain a maniacal focus on helping people understand what they can accomplish on the network, that is where we need to concentrate all of our energies.

We actually don't spend a lot of time talking and thinking about any of the companies that are trying to enter the professional networking arena.

Now, the second question about well, there are so many of these social networks, how is the world going to evolve, and how does LinkedIn fit into it?

My view is, the larger the network, the more valuable it is to be in it, and that it's really important to have differentiation in your network. If you look at LinkedIn, it is a very large network, and it is very different. It's all about professional productivity and effectiveness.

Q: What if Facebook were to take a strong move into that space?

A: The thing that's important to take into consideration is who exactly is on LinkedIn and who is on Facebook or MySpace or any of the other networks.

There already are 30 million-plus professionals who are using LinkedIn for professional purposes. Now, some of them are on Facebook, but when you look at what they're doing on Facebook, they're using it for photo sharing, video sharing, playing Texas Hold'em, playing Scrabulous, poking and the various things that happen there.

It has a place, it has a purpose and it's a lot of fun, but it's also pretty clear that people want to have a set of professional contacts and a professional persona and presentation of themselves.

Q: Can you briefly explain the various applications you rolled out recently?

A: We have approved 11 applications from eight vendors. Google Presentations is where you can create a presentation - a slide show - and have it on your professional profile. So, if you go and give a talk somewhere, put the talk on your LinkedIn profile so that people can see it.

Another great one is Amazon book reviews. You can share with your network what books you want to read, you recommend, or you just read and you can make comments about them; and then you can say, show me what books my network is reading and show me what books the people in my industry are reading.

The third is an application for file sharing. You can invite people to share files with you, and you can go put photos in the file, you could put documents in the file of any type, and people can edit them and collaborate with them and put them back in the file.

Another example is TripIt, which is if you're going on a trip, you share the trip details on TripIt and it will tell other people in your network who have TripIt that you're going to be in their area, or you can get alerts to know what other people are doing.

And then one of the really fun and exciting apps is one called Company Buzz. It takes your profile and it sees the company you work for and the previous companies you worked for, and where you went to school, and it goes out to Twitter and it says, this is the buzz that's happening about the things that you're interested in.

Q: What are you going to do with all that money you just raised?

A: Well, the idea was to have that in the bank for whatever the company needs, meaning if we're in an economic mess that's as bad as many predict, it'll be a darn good thing to have that for some insurance. But it's also to take advantage of the opportunities that we think will be available in this economic period.

If companies can't get funded, but they've got great technology or haven't built their revenue streams and they have great technology in great engineers and we think that it would deliver value to our members, were going to be interested, and were going to take action.

Q: What about being acquired?

A: Our plan is to build a strong independent company. We aren't cutting any corners in building this company.

We are investing in the technology infrastructure, we're investing in the corporate infrastructure, and we're investing in people. If you were trying to build for sale, you just wouldn't be investing at the level that we are.

Q: What about an IPO?

A: As a strong independent company that's venture backed, the path that we expect is that we will ultimately have an IPO.

Q: Got a time frame?

A: We don't have a specific time frame in mind.

Listen to the full interview at www.sfgate.com/ZFKW.

Participating in this interview were Business Editor Al Saracevic; Deputy Business Editor Suzanne Herel; SFGate Senior Business Producer Annika Toernqvist; and staff writers Deborah Gage, Andrew S. Ross and Benny Evangelista.

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