Sep 25th 2008 | HAMBURG AND MOUNTAIN VIEW
From The Economist print edition
AMONG the few firms benefiting from the upheaval in the financial markets are professional social networks—websites that help with business networking and job-hunting. On LinkedIn, the market leader, members have been updating their profiles in record numbers in recent weeks, apparently to position themselves in case they lose their jobs. The two most popular sites, LinkedIn and Xing, have been growing at breakneck speed and boast 29m and 6.5m members respectively. And, in contrast to mass-market social networks such asFacebook and MySpace, both firms have worked out how to make money.
LinkedIn and Xing are similar in many ways. Both cater to youngish professionals with above-average income, and allow people to connect, keep track of each other’s activities and create groups of common interest. Both are also profitable: since they help members find jobs or build their businesses, many users are willing to pay.
Yet the firms come from very different worlds. LinkedIn, a typical Silicon Valley start-up, was founded in 2002 by Reid Hoffman, a serial entrepreneur, to manage his own network of business contacts. Funded by venture capitalists, it recently secured $53m of funding in a deal that gave it a valuation of over $1 billion. Xing, for its part, hails from Hamburg, in Germany, and was founded in 2003 by Lars Hinrichs, another serial entrepreneur. It has relied on subscription fees since its launch, and it went public in 2006.
LinkedIn is culturally American, not just because English is the dominant language (there is also a Spanish version), but because it is still chiefly about advancing its members’ careers, even if many other things get a look in. The company does not release numbers, but a big chunk of its estimated annual revenues of $100m in 2008 is said to come from headhunters and companies, which pay to search LinkedIn’s database and contact its members.
Xing, by contrast, has a distinctly Germanic feel, despite being available in 16 languages, including Mandarin. Although recruiting also plays an important role, the site is more about networking. Members often meet offline. They also generate 80% of the firm’s revenue, which amounted to €16m ($24m) in the first half of this year. Half a million users pay a monthly fee of €6 ($9) to use the site: Xing’s profit margin was 37% in the most recent quarter.
LinkedIn is well on its way to becoming the networking site of choice for English-speaking businesspeople with global connections. But this does not mean that Xing will get squeezed out. If it plays its cards right, it could become the European alternative that takes more account of cultural differences in the way business is done.
Things could change, however, if Facebook grows up and becomes a place to do serious business, says Jeremiah Owyang of Forrester Research, a market-research firm. There are other potential rivals, too. American newspapers such as the New York Times and the Wall Street Journal are adding networking features to their websites. These are mainly meant to get readers to stick around, but they could grow into alternatives to professional social networks. And then there are the professional associations for which moving online would be only natural, but which have been a surprising no-show in social networking so far, according to a recent study by Outsell, another market-research firm.
Whatever the outcome, it seems certain that professional social networks are here to stay as independent entities—something that cannot be said of their mass-market counterparts. As Mr Hoffman, LinkedIn’s founder, puts it: “Most users of social networks have a lot of disposable time, but not much disposable income. With professionals it is the other way around.”