LinkedIn IPO – A Radical Transformation in Corporate Recruiting Begins

Today LinkedIn announced its long-awaited IPO.  The numbers tell a story: this company is going to radically transform corporate recruiting.

Here are a few of the important statistics to consider.

What it is: LinkedIn positions itself as a social network for professionals (“professionals are defined as individuals with a career, built on distinctive qualifications”) – which means they focus on those of us who work for a living.  (As opposed to housewives, househusbands, college students, children, retirees, etc).

Size: Today there are 90 million registered uses of LinkedIn, and the company is growing at a rate of around 3 million new people per month.  The company is global:  52% of its members are from the US, 25% from the European Union, 4% from Canada, 8% from India.  The fastest growing new geographies are in India and South America, where there are more young professionals seeking jobs.  The company has members in 200+ countries and supports 6 languages today.  It delivers around 1 billion pageviews per month.  The company appears to have generated 2010 revenues over $200M (2.5X 2009 revenues), so could be $500M or more this year, as the job market heats up.

Offering: The system has been carefully designed as a professional networking site, with features like automatic resume generation, management and analysis of companies, industries, roles (by level), and very powerful search tools (available to corporate recruiters) which enable a user to find almost anyone in only a few clicks.  Users are connected to other users, creating “professional maps” of social connections. LinkedIn sent me a printed copy of my personal LinkedIn map, and I saw my professional friends from college, each of my prior employers, and my discipline-related friends all mapped out visually.

The system supports highly intelligent advertising, enabling an advertiser to not only target people by age, profession, industry, level, and geography – but to also produce advertisements which take advantage of an individual’s employment history.  If you are a recruiter from IBM, for example, and you post ads for a certain demographic, the system will look for people who worked for related companies and deliver these ads based on your own employment history.  LinkedIn’s click through rates for these ads are amazingly high.  The company also sells customized company employment portals and will add many new services for employers and job seekers this year.

Business Model: The company makes money by selling professional subscriptions to individuals, job listings, advertisements, and professional or premium subscriptions to businesses.  The premium offering to recruiters (called LinkedIn Recruiter) is essentially a turbo-charged sourcing tool which lets a recruiter find and contact anyone in the network.  (It’s like the secret rolodex of the headhunter you’ve been talking to all these years.)  Amazingly enough, the recruiting-related revenue is over 70% of the company’s revenues.

The company competes with Facebook for eyeballs (but most professionals use Facebook for personal connections, not professional connections) – yet has really become the defacto professional networking tool in most of the countries where it focuses.  In my career (which has spanned technology, services, training, and human resources) I find that nearly everyone I have worked with in the past has somehow appeared in LinkedIn.  When I meet a new business contact who is over 25 years of age, there appears to be a 90%+ probability they are already in LinkedIn.

Focus on the Recruiting Industry: The recruiting or “talent acquisition” industry is over $120 billion, if you consider all the services related to job seekers and employers.  This huge industry includes many categories, including:

  • Employer Services: job boards, executive search firms, contingent and retained search firms, recruitment process outsourcers, small and mid-sized recruiters, applicant tracking systems, referral services and systems, background checking services and systems, pre-hire assessment systems and content, recruitment data and information providers, and thousands of consulting firms.
  • Job-Seeker Services: referral and counseling services, outplacement services, job boards,job fairs,  interviewing tools and education, career development services, and a new breed of job-seeker tools which help match job seekers to jobs.

This industry is both very large, very fragmented, and very innovative.  In the United States today, there are around 150 million employed professionals, and most estimates state that between 20-25% change jobs every year.  In some demographics the rate of job turnover is higher.  Every time an individual changes jobs, a whole chain of personal and business activity takes place:  people look for jobs, they move, they spend money on interviewing and other tools, they take training, and they often buy new clothes.  The whole “industry” of talent mobility is enormous and even during recessions it continues.  During this recession, when the unemployment rate went up over 10%, there were still millions of people who changed jobs.  While the corporate recruiting part of the industry goes in cycles (and is now rapidly growing again), other segments of the market are counter-cyclical.

How LinkedIn is Transforming Corporate Recruiting: I’m not sure if Reid Hoffman ever realized he was building a recruitment network when LinkedIn started, but that is what it has become.  Today, at least, LinkedIn is rapidly become a very “must-have” tool for corporate recruiters in larger organizations.  Today corporate recruiters are madly trying to understand how to leverage social networking for recruiting.  Social networking tools serve as employee branding tools, recruiting tools, candidate management tools, and sourcing tools.

Our new High-Impact Talent Acquisition research (a survey conducted late last year among 400+ organizations) found that while 71% of companies use job boards to post or search for candidates, only 30% use social networking sites to post or source jobs, and only 23% have candidate relationship management tools (e.g. tools to help keep track of candidates throughout the process of farming, developing, and recruiting poeple).  Our research tends to reach more advanced companies, which means that at most one in four companies today has any idea how to use social tools for recruiting.  When asked “what skills would you like to gain,” corporate recruiters named “social networking tools” as their #1 choice of new tools to better understand.  So this market is new and very under-penetrated.

Adding to this is the fact that the use of targeted social networking systems like LinkedIn has a HUGE return on investment.  Companies like Accenture and Novartis, who have to hire large number of highly skilled professionals at various locations around the world, have shifted 30% or more of their sourcing to LinkedIn.  Companies are now “insourcing” recruiting and teaching themselves how to source candidates again.  With a turbo-dashboard like LinkedIn to find people, they can now focus their energies on selecting the right candidates, developing a compelling employment brand, writing great introductory emails, and developing great scripts for interviewing and assessing candidates.

With numbers like this, companies which hire mid-level professionals (you arent going to find McDonald’s employees here yet) are going to radically (and I mean radically) move their dollars from external sourcing and recruitment toward internal expertise.  This is not to say that external recruiters are going out of business – but every dollar spent on LinkedIn recruitment is probably equivalent to $20.00 or more which would have been spent on an external recruiter (that ratio might even be higher).  This does mean that recruiters have to re-learn their craft – but most recruiters love doing this kind of work, so now they have a fantastic new toolset to use in their profession.

LinkedIn is not the only game in town.  Companies like The Ladders and are moving in this direction.  And the company still needs to expand its focus on contingent workers, jobs posted in multiple locations, and candidate relationship management.  But these things are coming, and right now LinkedIn is taking the lead.

Bottom Line: LinkedIn is a transformative company.  Not only has the company developed an amazingly powerful system for personal business-to-business networking, they might have accidentally created one of the most disruptive forces for change in the corporate recruiting market.  And this type of change is good:  it takes power away from the middleman and gives it to the buyer and seller (the employer and employee), making it easier than ever for job seekers and employers to create the “right match” between a professional and their dream job.