Do you really understand LinkedIn’s business strategy?

LinkedIn is transitioning from a career portal to a professional network, enriching its members with industry relevant content and professional office solutions.

On February 5, 2016, LinkedIn experienced its worst day since its high profile IPO on the New York Stock Exchange in 2011. The stock plunged as much as 46.5 percent to a three year low of 102.89 and the market value dropped by $11 billion (Reuters).

Investors punished LinkedIn due to its weak net revenues of $2,991mm compared to the forecasted range $3,600mm to $3,650mm (Reuters). Furthermore, the percentage year on year revenue growth was down 10% points from 45% 2014 to 35% 2015 (Both US and International markets). In particular international Marketing Solutions dropped from %y/y revenue growth of 38% 2014 to 12% 2015. As well as Premium Subscriptions that was down 20%points from 42% 2014 to 22% 2015 (both US and International markets).

“Stock price represents the market value of the future stream of earnings”

What is LinkedIn’s business?

LinkedIn is organized in 3 main revenue streams:

  • Talent Solutions
    Talent Solutions is the most known of LinkedIn products, and potentially what most users associate LinkedIn with. Under Talent Solutions exist the opportunity for Companies to create career pages, post job ads and look for suitable candidates with LinkedIn’s recruiter software. Talent Solutions represent 63% of LinkedIn’s total revenue and can be defined as the Cash Cow.
  • Marketing Solutions
    Marketing Solutions is LinkedIn’s ad service where you can buy text, display, InMail, and sponsored updates. An ad product similar to Facebook ads that allow clients to customize a message and display it on the site. The challenge that LinkedIn is facing with Marketing Solutions is LinkedIn’s limited repetitive page views that in comparison to Facebook or Google are relative low. In 2014, American users spend on average 42 minutes a day on Facebook, whereas LinkedIn was just 9.8 minutes (eMarketer.com).
  • Sales Solutions
    Sales Navigator is the latest product in LinkedIn’s portfolio and to most people an unknown service. The product is utilizing data from LinkedIn’s 414 million members to generate valuable leads and assist sales staff prospecting. The product is still considered to be in its infancy stage and has received mixed reviews. However, there should be great potential for Sales Navigator being one of the key streams for revenue in the future.

LinkedIn_Revenue Streams

From Job Search to Publisher

LinkedIn started out as an online network for professionals and have become the world’s leading portal for job seekers and recruiters. Talent Solutions has very much defined people’s perception and LinkedIn is now working hard to change that mindset to suit a broader value proposition.

People who is active on LinkedIn would have noticed a recent explosion in publications on LinkedIn. LinkedIn allows every single member to publish posts on his/her profile and lately LinkedIn has been hiring professional journalist from papers like the Financial Times and Huffington Post to enrich LinkedIn Pulse with professional content. This is all a part of a strategy to increase time spend on LinkedIn and transform LinkedIn from being perceived as a career portal to become a professional platform providing value on several different levels.

Where is LinkedIn headed?

LinkedIn has one of the world’s largest databases of professionals and LinkedIn has collected an unprecedented amount of data, which naturally can be utilized to offer a wide variety of professional service.  Among these services is the Sales Navigator tool that opens LinkedIn to a whole new segment of clients.

What investors should assess when valuing LinkedIn is LinkedIn’s move into new and more lucrative customer segments. My belief is that the general perception of LinkedIn as a career portal is heavily mistaken and valuing LinkedIn with that mindset is potentially myopic.

Is LinkedIn overvalued or not?

LinkedIn closed at $114.35 equal to Earning Per Share (EPS) of $-1.29, which indicate that it might not be the most attractive investment available. However, considering that the stock was trading at $200+ last year and now is trading at half price, despite no operational changes at LinkedIn, might indicate that investors do not fully understand the strategic transition driven by LinkedIn CEO Jeff Weiner.

LinkedIn_process

From a strategic position LinkedIn is currently only executing stage 2 of a 3 stage plan.

  • Stage 1 was to establish a member base of critical mass and ensure network effect, which LinkedIn achieved with its Talent Solutions products.
  • Stage 2 is to make LinkedIn widely valuable to professionals outside of job seeking and hiring. LinkedIn must attract more traffic and is with its services Pulse and Lynda competing in totally new territory.
  • Stage 3 is where LinkedIn will become profitable. Through professional services like the Sales Navigator sold to companies and enterprises. For stage 3 to succeed, Stage 2 must be a success. Only then will LinkedIn fully benefit from its 414 million members.

The privilege of fresh air

Oh I am so privileged! So privileged to breathe fresh air, so pure and clean that 50 years from now, my doctor will compare my lungs with that of a new born child. However, that isn’t the reality for certain regions of this plant and I have come to discover that with my recent move to Singapore.

When growing up in Scandinavia, no one is questioning the quality of the air. True there is smog and pollution in the air mainly from cars and from a few fossil fuel power plants. All over the air quality is considered very well on the PM10 and PM2.5 indexes.

However, that is not the case everywhere in the world and currently Singapore is one of those places. Not that Singapore choose to be a polluted environment, but because of its geographical location that allow its neighbors to contaminate the air of Singapore. Every year Indonesia is hit by forest/wild fires that are intended to clear the land and make space for plantations, mainly for producing palm oil and paper.

Naturally the firers causes smoke that is send into the air and can travel for hundreds of miles, depending on the size of the particles in the smoke. This is defines as haze, which is currently contaminating the populations of Indonesia, Singapore, Malaysia and other neighbors. The implications over time can be serious health issues and in worst case lung cancer.

When living and experiencing this smoke season, where people are encouraged to wear N95 masks, and avoid outdoor activity. That is when you realize that fresh clean air is not a birthright and something that shouldn’t be taken for granted. A lot of people’s health is jeopardized for somebody else’s profit. A professor of Nanyang Technological University shared this article about how we as political consumers can exercise our powers to avoid haze in the future. Exercise Consumer Power to Fight the Haze

If you want to know more about the effect of haze, the Straits Times shared this explanatory article, which features a live satellite map provided by NASA, showing the fires all over South East Asia. Straits Times Haze Graphics

Fires South East Asia

Global Management Challenge 2011

Global Management Challenge

I participated in Global Management Challenge (GMC) the world’s largest Strategy and Management Competition, where more than 450,000 university students compete worldwide. Global Management Challenge is the largest international business simulation event and has a history going back to 1980 when if for the first time emerged in Portugal by SDG – Simuladores e Modelos de Gestão. Today 34 nations are represented in the game and the nationalities stretch from Denmark to Singapore; from Venezuela to China.

The game is a simulation game challenging me and all the other 450,000 participants with over 60 different decisions weekly, created to simulate a real decision board in a real company. Everyone participate in team of 3 to 5 people, and I was joined with 4 classmates about making the decisions.

The game gave me a great insight in what it takes to manage a production company, with all from buy of raw material, production facilities, employees, budgeting, agents, distributors, investors and 60 other parameters.

The game is played on a weekly basis, with one decision sheet per week. What defines the success on the scoreboard for the company is the value of the company’s stock on the stock exchange. The greatest companies reach the Danish final, where the best team will represented Denmark in the international final, in year 2011 taking place in Macao, China, only an hour with boat form Hong Kong.

Global Management Challenge is in Denmark sponsored by Maersk, Accenture, Siemens, Cowi, BiBoB, KPMG, BK Medical, IDA management forum and DJØF.

Read the official documentation for Global Management Challenge here

The concept of Full House

Boxen Herning Handball

Some might think that by Full House I am referring to the popular 90‘s TV series by the same name. However I am not.

I am referring to the concept of “sold out” for different events; here sport events in particular. When we talk about events we talk about a product of experience an entertainment and in general a product that competes with other cultural and entertaining opportunities such as theater, movies, concerts and might even TV. Therefor is it also a challenge to attract an audience for these events.

Sport events are especially tough, due to fact that a part of the experience is the excitement of the audience, which means that the organizer must present an arena full of people. This is what is needed to meet the expectations of people who have paid a lot of money for a ticket.

So how to fill the arena and deliver the expected experience. For certain sport events it is no problem, because there is a large fan base that shows up for every game and support their team. However other sport events are not that popular and need much more care to sell.

Here comes the concept of free tickets. But why give tickets away for free? Do you make money on giving things away for free? I would claim that you can make even more money, than when charging the audience for the ticket. Tickets are a money making machine and stop charging money for the product you are selling is not the infinitive solution. The problem is when you cannot sell tickets enough to deliver the expected atmosphere, which is required for not disappointing the audience.

So when that happens it is about time to give the tickets away for free. Do not see the concept as giving away the product for nothing, but see it as effective advertising. You should keep in mind that no matter if you hand out fee tickets or not, your expenditures for having the event will be almost the same. However your revenue will increase dramatically. Because when people go see sport events they buy a beer or two, or might even three and of cause they also need something to eat meanwhile, as well as snacks to pleasure the experience. All these goods are bought in the arena and are goods with a large profit margin, which means good revenue.

Let’s try a simple example with imaginary figures: We have an arena with a capacity of 10.000 spectators. Of these 10.000 tickets we have sold 5.000 to a price of 350 DKK. which is equal to 1.750.000 DKK. An average spectator spends around 100 DKK. on snacks and beverages during a game, which is 5000*100 = 500.000 DKK. 1.750.000+500.000 = 2.250.000 in total revenue. Then calculate the extra revenue of filling up the arena. 5000 extra spectators multiplied with 100 DKK. equal to additional half million. In total 2.750.000 DKK.

A bonus to the extra revenue is the advertising effect, which might tempt people to buy a ticket for the next game. Therefore is it also important that people feel special when receiving free ticket and therefore should it not be the same that gets free tickets every time. There are various opportunities to award people free tickets, but it might be clever to give people free tickets in uneven numbers. Imagine receiving three tickets for free and then have to buy the last one, so the whole family can have an experience together. If this is possible it will result in a 25% increase in revenue from tickets.

Another potential source of revenue is to think of the sport arena as marketplace for lotteries, accessories and competitions. In reality it is all about being creative and one nationality that Danish event organizers could learn from is the Americans. One thing is clear; giving away tickets for free is not such a bad idea, because when people first are gathered around an event you have every opportunity to sell additional goods.

Don’t work for money, let the money work for you.

This article is inspired of the book “Rich Dad – Poor Dad, by Robert Kiyosaki.”

Rich Dad - Poor Dad
Rich Dad – Poor Dad

Money is often mentioned as the root of all evil. Such a statement is often caused by money problems. Rich people would say that a lack of money is the root of all evil. Poor people often forbid the subject of money to be discussed at the dinner table, because of embarrassment connected to the current situation. At this point is committed a fundamental mistake. When you forbid discussing the subject of money, you are putting your head to sleep. You do not force you brain to work and figure out a solution for the matter of a bad financial situation.

When you walk down the street and see your colleague driving his new Porsche, it would be normal to desire what he got. But often is the desire killed by the mindset: “I can’t afford it.” Instead of thinking I can’t afford it, the rich man would think: “How can I afford it?” It is the same as the difference between the man who goes to the gym every day, and the man who sits at home watching TV. The man who goes to the gym get fit, the man in front of the TV get fat. It is very important to exercise your brain, and it might mean the difference between rich and poor.

To support my words I would like to retell a little story from the childhood of Robert Kiyosaki.

At the age of 9 Robert Kioyosaki and his friend Mike is asking Mike’s dad how to become rich. Mike’s dad is agreeing to teach them, but not in the classical school way. The two boys are offered a job for 10 cent an hour, and the terms are: take it or leave it. After have been working 3 hours every Saturday for 3 weeks, it becomes enough for Robert. He thinks he is underpaid and he is confronting Mike’s dad. Mike’s dad is glad to see his reaction, but he is having a hard time convincing Robert that he as the employer is not the problem, but that Robert is. Robert walks away from the meeting, now working for free. Working for free is not especially exciting and Robert and Mike are getting their eyes open for opportunities. After been working for some weeks Robert and Mike notice that every week the manager of the store is ripping of the front page of all the comic books. The distributer is getting the front page, and the comic books are thrown out.  Robert and Mike sees an opportunity and make a deal with the manager that they get the old comic books, but they have to promise that they won’t sell them. The two boys opens a library and tax 10 cent each kid for reading all the comic books they can in the opening hour. They are hiring Mike’s sister to run the business. And they are making much more money that they would ever earn working for Mikes dad.

Do not work for money, let the money work for you. That is the main message of this article. Another important notification is that learning is much more valuable than profit. Tina Seeling, lector of Stanford University is saying: “There is a million dollar opportunity in every room you  enter.” You just need to open your eyes and see it.