Here's a Model for Profitable Social Networking

Posted by Abbey Klaassen on 06.19.08 @ 05:45 PM

There's been a lot of talk and advice on this blog about how social networking sites will make money. One major network, LinkedIn, is using a variety of models to drive revenue, which amounts to $100 million a year, according to VentureBeat.

The company this week announced a $53 million round of venture led by Bain Capital. The round pegs its valuation at $1 billion, and while that's nowhere near the $15 billion Facebook is reportedly worth, per the $240 million it raised through a deal with Microsoft, the company is profitable, according to director of ad sales Steve Patrizi, a former Dow Jones and Microsoft exec who's now leading sales for the site.

So how does LinkedIn make money? Currently, four ways, but it's about to add another: subscriptions, job postings, corporate recruiting, advertising and, soon, research.

Of course it doesn't hurt that the site is built around intent, that magic ingredient that has made Google's search engine such a prolific cash-printing machine (and the ingredient missing from other social-networking sites struggling with an ad model). People are on the site to be successful as professionals, said Patrizi, and that can range from hiring the right person or finding a new job themselves to getting more customers or making a business deal. The audience is professional, affluent and easy to segment, since people generally keep their profile data up to date.

Anything can happen, of course, and it was just last summer that many were spelling LinkedIn's demise, thanks to a swath of fancy new applications being developed on the faster-growing Facebook. Now as the phrase "application fatigue" peppers the blogosphere, LinkedIn's feeling good about what it did not do: open up its platform and create a free-for-all for developers. While Patrizi said LinkedIn may at one point allow some outside developers to create applications for the site, it will be a calculated, controlled process.