Why a LinkedIn Connection is Worth More than a Facebook Friend

A lot of times I read things that say that LinkedIn is a better business because they cater to professionals while Facebook focuses on personal relationships. I think that’s a really superficial way to look at what is, in fact, a much more nuanced difference. At the end of the day, my impression is that LinkedIn can make (potentially) a much greater amount of money from passive / casual users than Facebook can because expanding the network of users more directly feeds into LinkedIn’s revenue model than it does for Facebook. That’s what makes LinkedIn a potentially better business today IMHO.

So Why Might a Passive LinkedIn Connection be Valuable?
I think that a LinkedIn connection is worth more than a Facebook friend (as measured in terms of value to each company) based on the business model they’ve chose to employ. LinkedIn makes money from both advertisements and its subscription service. Without access to detailed financials, I’m willing to wager that the subscription side of the house generates the majority of the revenue, even after adjusting for the relatively high CPMs they might get given their audience and traffic. Looking at the latest Compete traffic (U.S. only) shows that Facebook gets a lot more traffic than LinkedIn – that’s not surprising to me at all:

So, even if LinkedIn is getting much higher CPMs than Facebook, I find it hard to believe that the traffic differential suggests that LinkedIn is not getting to its roughly $75-100 million run rate largely on the basis of display ad impressions.

If LinkedIn’s core revenue driver at the moment is the subscription business, LinkedIn becomes more valuable to potential subscribers as the number of people who are on their service with reasonably complete professional profiles increases. Regardless of whether those people log in on a regular basis, they’re in the network and hence potential targets for the subscription recruiting side of the business. As you grow the network, you grow the appeal of the network as a recruiting tool or resource for power networkers.

So What About Facebook?
Is the same true of Facebook? Well, I don’t really think so at this point in time. Facebook appears to make the majority of its money from advertising (minus a growing fraction that comes from virtual goods sales). In an advertising model, you actually need people to come to the site an interact to make money – Facebook probably doesn’t make that much money from its passive users unless they’re clicking on pages and generating ad impressions.

If this is true, Facebook needs active users (people who like the service and spend enough time on it to generate ad impressions) whereas LinkedIn needs a large base of users (passive or active) and a large and growing number of people willing to pay for the privilege to access that network. It’s not about professional vs personal – it’s just about the underlying way in which each company gets paid.

  • claywhitehead

    Charles, I like your post and agree that the value of a passive user is higher for LinkedIn than FB. I'd add the caveat, which I think is implicit in what you are saying here, that a user cannot become too passive. Passive users must at least accept some connections or update their information with some regularity to create and sustain value for active users. Some might think that this issue boils down to the semantics of active vs. passive passive users (30 day? 60?) but the bottom line is that you need at least some level of activity from your passives, beyond just signing up, for them to create any value at all.
    I'd also add that not all users are created equal. You can measure users along many dimensions – content created, number of links, etc – and I think that it's worth acknowledging that any analysis of user value is going to involve segmentation along a number of dimensions. One example: if LinkedIn allows a start-up to reach the decision maker at its first client, LinkedIn is of nearly infinite value to that start-up, regardless of how active or inactive that user is on the network (assuming they can be reached through the network.)

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