Six Pixels of Separation - The Blog
May 24, 2011 9:10 AM

LinkedIn, Social Media And Bubbles

Late last week, LinkedIn became the biggest U.S. Internet IPO since Google back in 2004.

Everyone from investors to start-up entrepreneurs and media pundits have looked at this deal sideways. The commentary mostly revolves around this being either a sign of the new apocalypse or what is to be the next great Internet stock market bubble (in some business circles, these are the same thing). Beyond the hype (the stock doubled in price on its first day of trading) to confusion (The Atlantic ran a Blog post titled, Did Bankers Scam LinkedIn Out of Over $130 Million?) to speculation (the International Business Times published an article titled, LinkedIn IPO: What Does This Mean For Facebook?), there is no doubt (just take a look at the market) that LinkedIn's IPO continues to rally tech stocks. It's just hard to imagine that an online social network specifically targeted to the business professional suddenly has a valuation that rivals brands like Tiffany & Co., Hormel Foods, Electronic Arts, Hyatt Hotels and Hertz Global Holdings. It's even harder to imagine when our media is filled with brands like Facebook, Twitter and Zynga (all of which get much more media attention than LinkedIn, and all of which are still not public companies) and we've rarely heard much public excitement about LinkedIn and their growth.

The big question is: is LinkedIn just hype or is this the real deal? The lesser-hyped question is: is this the sign of a second dot com bubble.

I joined LinkedIn very early on. In fact, I am member #23,540 according to my profile information (as of March 2011, LinkedIn has more than 100 million members in over 200 countries and territories, according to their website). For years, I've Blogged about the merits and quality of LinkedIn over other online social networks. It was (and still is) a fairly private experience (you have to approve every person who would like to see your profile, and only a limited amount of information is made public prior to that approval of a LinkedIn connection). On top of that, if you would like to connect with an individual, you have to either know that person's professional email address (that person is then asked if they would like to allow you to connect back to them) or you have to be introduced to that person through someone who is a direct contact (one degree of separation). Beyond that, LinkedIn boasts a premium service that members can pay for (the premium service offers features like the ability to message anyone on LinkedIn - whether you're a direct connection or not and the ability to see who has been snooping on your profile). Their advertising model may not be any more unique than other online spaces (display and text advertising solutions), but the information and targeting capabilities are second-to-none as members of LinkedIn tend to spend a lot of time ensuring that their business profiles are up-to-date (this information includes the type of specific data that advertisers drool over). The company has other revenue channels as well (recruiting solutions, etc...), and it has been focused on monetizing the platform since it first launched in 2003.

So, while it's easy to see and follow what any one individual is tweeting about over on Twitter, LinkedIn connections don't come so easy.

As people add friends on Facebook as if they're collecting baseball cards, LinkedIn always focused and catered to those who were looking for the quality over the quantity in their business-focused online social networking needs (many people ignore other people's invitations to connect). On top of that, LinkedIn is a business... a real business with multiple revenue models that is sadly being confused and clumped in with other Social Media darlings who haven't yet figured out how to make money or where that money is going to come from. And, while the platform has many people who are still trying to game it and spam it with nonsense, the average LinkedIn user takes this online social network seriously. Investors, journalists and media critics should do the same.

The dot com bubble and crash (1995 - 2000) happened primarily because investors were speculating on the potential of businesses that few of them truly understood.

In all fairness, the technology and connectivity wasn't even advanced enough for anyone to really know how this would pan out. That being said, for every sock puppet selling pet food, there were still companies like eBay and Amazon who had a clear vision of how commerce and business would change in the not-so-distant future. Sadly, the serious businesses got lumped in together with those who presented a business model that was nothing more than a beautifully wrapped gift that had nothing inside of it. Times have changed. Serious money is being exchanged in these digital channels and consumer usage is off charts if you look at Web, mobile and touch experiences. And, while we still have certain geographic regions that do not have blazing connectivity speeds, it's getting better as we move towards a hyper-connected society. Beyond all of that, the Internet has now been commercialized for over twenty years and Social Media is over a decade old. LinkedIn could well be validating something that many of us have been saying for a very long time: this is not a fad. This stuff works and people are using it (it's also getting easier and easier to use with a lowering barrier to entry for newbies).

The businesses that are still ignoring this digitization of everything - from how we buy and consume our media to how we network - may well be the ones who will have their bubbles burst first.

The above posting is my twice-monthly column for the Montreal Gazette and Vancouver Sun newspapers called, New Business - Six Pixels of Separation. I cross-post it here with all the links and tags for your reading pleasure, but you can check out the original versions online here:

By Mitch Joel