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.”