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Last year LinkedIn followed the example of other tech platforms with lots of user data, like Google and Facebook, and started letting advertisers use that data to target their ads to people outside of LinkedIn. Twelve months later the work-centric social network is shutting down that part of its ad business.
On Thursday LinkedIn announced that it will stop selling ads that appear outside of its walled garden. The company estimated that it will miss out on $50 million in revenue, but it appears the costs of growing and operating that business offset any profitable upside.
"While initial demand was solid, the product required more resources than anticipated to scale," LinkedIn CFO Steve Sordello said in the company's earnings statement released on Thursday.
LinkedIn had erected its ad network after buying business-to-business ad-tech firm Bizo for $175 million in July 2014. The company said it will use the technology behind its ad network -- which identifies people visiting a marketer's site and matches them against their LinkedIn profile -- to inform its sponsored content ad format that lets brands promote their content into LinkedIn users' news feeds, similar to how ads on Facebook and Twitter work.
Mr. Sordello described sponsored content as "our fastest growing and most profitable ad product." In the fourth quarter of 2015, LinkedIn's sponsored update ads, which include its sponsored content format that appear in people's feeds as well as paid placements on companies' own LinkedIn pages, accounted for 52% of the company's ad revenue. LinkedIn's ad revenue grew by 20% year-over-year to hit $183 million in the fourth quarter and account for 21% of its total revenue.
It appears that LinkedIn's ad network isn't the only part of the company that's struggling. The company reported an $8 million net loss in the fourth quarter and lowered its forecast for future earnings, apparently sending its stock price down by 40% early Friday morning.