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.