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Should You Invest in LinkedIn and Forget Facebook?

Should you Invest in LinkedIn and Forget Facebook Marketers everywhere are trying to discover how to monetize social media. But some social media sites can’t even make money from their own users.

Facebook has been in the news recently for failing to live up to its business promise. LinkedIn, however, has performed remarkably well in the same difficult sector.

It has announced quarterly sales that would see it approaching $1 billion in annual revenues within 12 months. Membership is growing at 60% per annum and in countries like Australia it is growing faster than Facebook.

So what differentiates these two companies? Their business plans.

Facebook Struggling with Mobile Monetization

Facebook’s stock price started at a very high $38 a few months ago, but now it has plummeted to close to $20. Investors fear that the company will not monetize its 900 million users effectively—and they may be right.

The largest portion of the company’s ~$4.5 billion in annual revenue has so far been through ad sales. But click-through rates as low as 0.05%, as well as so-far unsuccessful mobile ads, are hurting the company.

Quite frankly, ad revenue alone will not be enough to power the company going forward. Facebook needs a new and effective business plan if it is going to avoid failure.

Zuckerberg is trying out new revenue sources, such as advertising mobile apps in its app center and linking to Google Play and the App Store. Another new venture for the social giant is as a platform for internet gambling in Great Britain. Unfortunately for investors, neither of these new ventures looks likely to solve the revenue problem on its own.

On the opposite side of the social media spectrum is the professional networking site LinkedIn. LinkedIn users only spend an average of 18 minutes per month on the site, compared to 6.4 hours for Facebook users.

LinkedIn Monetizes Recruiters

However, LinkedIn is able to generate revenue of $1.30 for every hour a user spends on the site. Contrast that to Facebook, which only earns just over 6 cents per hour of use.

Originally, LinkedIn made most of its money through advertising and $9.00 premium subscriptions. However, the last two years have seen the company shift to a focus on monetizing the massive data they’ve collected. With information on thousands of workers and job seekers, they provide corporate recruiters with one of the best recruiting tools on the market.

Each corporate recruiter account costs approximately $8,000, a much better source of revenue than advertising. That premium product is the primary focus of the horde of LinkedIn sales reps.

There are two big lessons to be learned here: First, LinkedIn has had its share of troubles. But with leadership focusing on revenue generation while still building its user base, it has successfully monetized the data it gathers. Facebook needs to follow suit if it wants to succeed.

Second, Facebook has something that not many companies do, a user base of almost 1 billion people. However, by focusing exclusively on the user experience for so long, it has created a lot of very happy customers but does not know what to sell to them. A business plan is crucial to growth, and Facebook has the chance to become just as profitable as LinkedIn if it can figure out how to monetize the time that people spend on the site.

My own suggestion is that Facebook should position itself as a platform for e-commerce, allowing it to facilitate social buying on a level never before seen. This could generate money for the company while making the buying process easier for consumers and sellers. Win-win-win!

What do you think Facebook needs to do to become sufficiently profitable?

Guest Author: “Jonathan Slonim is a marketer, student, and social media strategy nerd. He studies Economics and History at Hillsdale College and is a marketing intern at a large manufacturer. Jonathan blogs about marketing and business strategy. You can also follow him on Twitter at @jonathanslonim.”

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  • Sorry for being such lurker here Jeff… Love the valuable insights and content you serve up here consistently.

    Thank you sir!

    • Thanks Mark and you can “lurk” as much as you want. Cheers

  • Paul

    I think it will come down to how well and potentially how
    quickly Facebook can make the final switch from a user focused “free”
    social media platform with a supporting advertising revenue stream, to a highly
    professional brand/business “broadcast media” channel with e-commerce solutions
    and additional services.

    We have already seen in the past few weeks the ASB ruling on page content and I
    have no doubt we will see further rulings that attempt to regulate and “define”
    what is it that Facebook actually is.. (or better yet what it does)

    It will be up to Facebook to make this definition for itself as quickly as possible before it is cornered by ledgistration or left behind by other
    faster moving emerging platforms that already have a business model in place and a clear sense of growth and direction.

    This could include the likes of social TV channels, social mobile players or even direct e-commerce or mobile payment players with a more social inclusion.

    In short Facebook is a broadcasting, advertsing and communications channel at a gloabl level for brands, individuals and groups and weather they like it or not they are going to have to put a stake in the ground at some point and adopt the behaviour of these sorts of businesses to turn a profit

  • Thanks for the feedback. It is good to focus on one or several platforms. It depends on time and resources that you have available and feel comfortable with.

  • Thanks Francisca. It was a labor of love with some blood sweat and tears thrown in for good measure.

  • Mmmmmm I this is why Zuckerberg resisited floating for so long as he did not want the focus of Facebook to be about revenue. The young are cynical and highly mobile once the $ becomes omnipresent they will move and facebook will be the next Myspace.

  • I tried a sample of your book – tried it for two pages and bought it – Nice piece of work.

  • ozio media

    Facebook continues to tinker with their
    unsuccessful advertising models and the latest developments for placing
    sponsored stories into the newsfeed is likely to be a precursor to other ad
    types finding their way into this part of their page too. Even so, people use
    Facebook to socialize and are already very wary of allowing Facebook to use
    their personal data for commercial purposes. In contrast, Linkedin users want
    their data to be shared around and they already use the site to promote
    themselves commercially, which has allowed Linkedin to develop the recruitment
    side of its business. It would seem to be drawing a long bow to see Facebook
    being successful with similar strategies.

  • Luis Rossi

    The reason linkedin is growing now is due to the recession, more people are using linkedin to find a job and paying for premium accounts, before the recession, the people were using facebook to waste their time in their desks.

  • I would plan a go-forward plan based on 3 pillars:
    1. Design a strategy for added value services (chargeable and free) and e-commerce;2. Work on the brand image to include drive also amore ‘professional’ usage;3. Define new, innovative ways for advertisement and marketing. (this can be driven byt the 2 points above)

  • Facebook should find equivalent of LinkedIn’s Recruiter base. I believe it is to serve as the advertising agency focusing in personalized marketing throughout the web. i.e. Facebook should leverage its customer life stage and event data to advertise throughout the web. (For example, single dad with a seven year daughter whose birthday is coming next month). This makes Facebook as the main web advertising agency for corporations, which will be lucrative.

  • I think it is a little early to give up on facebook. Social Media is still only in the early days of development and I have seen few people attend to really build good facebook campaigns.

    Understand your customers and which social media channels they use, this will provide the best answers to whether you should use facebook or Linkedin.

  • Congratulation on the book Jeff. Secondly, you just can not ignore all those Facebook icons on television. It seems almost every commercial on television tries to send you to Facebook. This factor has had to drive up the revenue for Facebook without a doubt. The real kicker of it all – Facebook gets this advertising for free. To this day the word engagement comes to mind when being successful on Facebook. The more engaging you can keep people on your business/personal page the better for Facebook.

    This in turn increases user time on the site and the possibility for more revenue. Facebook has to like that fact. It would not surprise me if Facebook puts more focus on larger companies than smaller companies since the larger companies can afford to advertise for Facebook at no cost.