LinkedIn shares yesterday plummeted precipitously after the company announced poorer than expected results, and downgraded prospects for the remainder of the year. Looking beyond the downgraded forecast and the costs associated with the $1.5 Billion acquisition of lynda.com, some analysts scrutinizing the press release, noted that there was no growth reported in the user base of “over 350 million users”, despite moves into China and other markets. Premium user revenue grew significantly but that did not come near to offsetting the total revenue number. Revenue and number of users are the two numbers followed most closely by investment analysts.
LinkedIn’s recent acquisitions have been noted as a LinkedIn strategy for compensating for flat overall user growth, and for diversifying into new markets to augment growth.
Some journalists are already asking if the market is over-reacting to LinkedIn’s downgraded forecast yesterday. The company has demonstrated solid results since it went public in 2011, and management seems to be confidently “in charge.” However, in my personal view, as a LinkedIn user for many years, I do think that the sell-off by shareholders may be justified and prudent, even if most analysts have not followed the company as closely as some others. I have this sinking feeling of LinkedIn losing its way, strategic errors, and the accelerated corporate life cycle in social media, in Silicon Valley, and at LinkedIn in particular. John Chambers has commented on this rapid pace of change in the context of his management of Cisco Systems. It is also akin to Andy Grove’s “strategic inflection point,”where the fundamentals of a business are changing but management may or may not realize it, and may or may not take the appropriate actions. Put plainly, something simply doesn’t feel right in my gut about LinkedIn
My concerns fall into three major areas: acquisitions, Premium user subscriptions, and LinkedIn user Terms & Conditions.
1. While observers have complimented LinkedIn management for some of their recent moves to acquire synergistic businesses in new markets, other moves have seemed ill-conceived and poorly executed. I wrote on this blog about the curious LinkedIn acquisition of CardMunch, a business card processing app for smartphones. The application was only available on iPhones, and enjoyed first-mover status, but the assumption was that an Android version would be imminent for obvious reasons. That never happened. After more than a year of doing nothing with the app and “leaving open a competitive market opportunity window the size of an aircraft carrier,” LinkedIn announced that it was changing focus to Evernote business card services, and apparently ceasing support for CardMunch. IMHO, the amount of time LinkedIn frittered away on this left them no option but to kill the app. While LinkedIn may argue that Evernote provides its users with a superior solution as justification for their decision, if LinkedIn had moved promptly when they had the opportunity, partnering with Evernote would have been unnecessary. There is also the matter of the money wasted on Linkedin’s original acquisition of Cardmunch, though the Cardmunch founders may feel they dodged a bullet, and probably now own LinkedIn stock.
2. Yesterday’s announcement noted that LinkedIn Premium subscriptions had grown dramatically in the last year. What we do not know is the raw number of Premium subscribers so the percentage numbers may be misleading. My sense of Premium subscriptions is that there is a significant amount of “churn” in Premium subscriptions. That is to say that LinkedIn may be adding numbers of users in new markets but the core base of Premium subscribers may be simultaneously eroding in the core U.S. market. My evidence is based on a recent LinkedIn Support discussion asking users their assessment of the value from their Premium subscription. The responses were an almost unanimous torrent of complaints of limited to no value experienced from paying the Premium subscription. This was only the most recent incident.
3. LinkedIn’s Terms & Conditions seem to have morphed into policies designed to make the site more of an app for recruiters and staffing personal than a “professional networking” site. I think I can safely stick my neck out and say that while LinkedIn was originally conceived as a professional networking site, few if any users truly think of the site or use it for professional networking. It is a bit of an arm’s length experience for LinkedIn users. The oft cited 3rd Level connections are useless. I will go farther and say that I do not know of anyone in my 500+ network who has successfully secured a senior position via LinkedIn. As we all know, this happens primarily through the kind of networking that does not occur on LinkedIn. In an odd turn of events, LinkedIn Groups policy was unilaterally changed without notice or discussion. The change enabled group admins to unilaterally bar specific group members from posting discussions for reasons that were obscure. The obvious problem was admin censorship and bias against a particular user. The apparent concern was that some users were posting discussions to multiple groups, though this was never made clear. The decision led to an uproar of angry comments on the LinkedIn Support Forum. After weeks of stonewalling and stalling, LinkedIn finally reversed the policy in the face of the stiff criticism from users. To me this smacked of Facebook’s ill-conceived policy changes which were eventually reversed.
In summary, I think LinkedIn has evolved into something very different than the site/application that many original users imagined they were joining and using. This fact seems to be sinking in with users, some of whom are showing increasing dissatisfaction with LinkedIn and with paying for Premium services that do not seem to offer value. I sometimes wonder about the people who view my profile, many of whom have no professional connection to me whatsoever and may be halfway around the World from me. Some of the new businesses sound interesting potentially, but I am not at all certain that I would use them. I have expressed concerns that the LinkedIn brand itself is being tarnished and devalued by some of the changes and policies. Most concerning, I wonder if LinkedIn management are aware of these issues and even admitting it to themselves, if not to analysts.
*I want to first declare that I have no special insight or information regarding LinkedIn. My comments and opinions on LinkedIn are based only on my own observations over a considerable period of time, my own interaction with LinkedIn Support, and recent media articles on LinkedIn.