14 Mar Free can be profitable
It turns out that “free” services can be profitable after all. Last week, the leading social network, LinkedIn, announced that this month it would hit the elusive goal of every startup organization: profitability.
After a few years of hooking up business contacts for free, LinkedIn last summer introduced premium services, ranging in cost from $60 to $2,000 per year. Acceptance of these premium offerings has exceeded expectations of even the most optimistic at LinkedIn. At least that’s my takeaway from a conversation with Konstantin Guericke, LinkedIn’s VP of marketing. The company is doing well enough now that it does not expect to need additional venture funding (it raised just shy of $15 million in two rounds since November 2003) to support business operations and growth.
Having proved that the premium services model works, the company (oddly enough) will spend much of this year optimizing its free offering. Among the features: the ability to locate and stay connected with schoolmates and former colleagues.
Other new features live by the old business adage, “It’s not what you know, but who you know who knows someone or something that really matters.” OK, so I tweaked the adage a bit, but this is what LinkedIn is doing with second-degree relationships. The service will match you with friends of friends to lead you to knew business opportunities. The company also won’t allow you to be a slacker – if your career profile isn’t keeping pace with people of similar backgrounds, the service will start nagging you with job offerings offered by friends of friends.
The funny thing, though, is that all these free service offerings are likely to make LinkedIn more profitable. The truth is that free Web-based content and services have never really been free. You just pay for it with a currency other than money. In the case of LinkedIn, you’ve used your contacts and your profile as currency. The more you tell LinkedIn who you know and what you’ve done, the more you have “paid” for the service and the richer the service is for it.
All that information capital then becomes the foundation of premium services. Those $60 to $2,000 per year offerings that have led LinkedIn to its new status as a revenue-positive Web 2.0 company.
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