Professional networks surge in popularity
Professional networks such as LinkedIn and Xing, a European rival, have surged in popularity amid the economic crisis, as people look for advice and jobs from their online contacts.
LinkedIn has defied the fall in corporate valuations and warnings from early-stage technology investors to raise $22.7m, valuing the company at $1bn.
The business networking site raised $53m as recently as June. The latest round of fund-raising brings in new "strategic" investors Goldman Sachs, McGraw-Hill, the publisher of Business Week, and SAP, the German business software group.
"The network is booming right now," said Dan Nye, LinkedIn's chief executive, with a new member joining every second, bringing it to a total of 30m.
Worldwide traffic to Linked In increased 123 per cent year-on-year in the three months until the end of September, according to Nielsen, the research group, compared with growth in the internet audience of 10 per cent.
Online recruitment sites, such as Monster, Careerbuilder and Yahoo's HotJobs, saw visitors leap 42 per cent in the same period.
"Financial services is one of our fastest-growing sectors," said Mr Nye, with activity - frequency and duration of visits - up 50 per cent in August and September.
"Clearly people are joining as they are thinking about their employment situation. People are also getting advice from their network, reference-checking vendors or searching for candidates to fill positions."
Xing now hosts a 2,000-strong group for "Lehman Brothers Alumni".
Lars Hinrichs, chairman and chief executive of Xing, said: "We see the crisis as very beneficial for business networks because you are spending more time on your career than on luxuries."
Xing, which is listed in Frankfurt, reported third-quarter revenue growth of 86 per cent to E9.18m ($11.66m), most of which comes from its 500,000 paying members.
The group, which also makes money from advertising and e-commerce partnerships, saw earnings before interest, taxation, depreciation and amortisation grow 53 per cent to E3.71m, a margin of 40 per cent.
LinkedIn does not disclose its financial figures but says it is profitable, with revenues up "well over 100 per cent" year-on-year in 2008.
That makes business networking a rarity among online networking sites. Mark Zuckerberg, founder and chief executive of Facebook, recently told Frankfurter Allgemeine, a German newspaper, that revenue growth would not be the social network's top priority for three years.
Sequoia Capital, an investor in LinkedIn, recently told all its portfolio companies to "get real or go home", in a presentation entitled "RIP: Good Times".
But Jeff Glass, a partner at Bain Capital, which led LinkedIn's latest round of financing, said he was comfortable with LinkedIn's billion-dollar valuation, thanks to its relative maturity and diverse revenue streams of subscriptions, advertising and recruitment.
"The short-term fluctuations in the markets don't change our perspective on the long-term opportunity," said Mr Glass.
"From day one, this was not a business built for a quick flip. It helps that LinkedIn has the cash to weather the storm."
Mr Glass said that unlike many social networks, where users' interest gradually wanes, LinkedIn's network effect meant it becomes more valuable and useful to its members over time.
Older members are "re-activated" by connections from new ones, saving on marketing costs.
By Tim Bradshaw
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