Internet Social Network Linkedin gets down to business

by René | April 29, 2007 at 08:32 pm

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This is the network that Mac Evangelist Guy Kawasaki has been raving about on his blog: How to Change the World

Looks like networking can be very lucrative for the innovators.

LinkedIn started out back in 2003 as the only business-oriented social network.

LinkedIn now has 8.5 million members and 1.5 million unique visitors daily, scouring the job listings, questions and answers, and using internal email with subscription fees (45% of LinkedIn's revenue comes from subscriptions).

Remember when popular social network Facebook received a half-a-billion dollar valuation earlier this year?

You might raise an eyebrow when you hear about how venture capitalists are set to value business network Linkedin, if only because you're one of those who've wondered just how or whether this company makes money.

Well, apparently the Palo Alto-based is making money, and investors have noticed.

Venture capitalists are close to finalizing a venture capital round, investing $13 million and valuing the company at a post-financing valuation of $250 million. Since the deal isn't closed yet, anything can happen between now and then, cautioned Keith Rabois, Linkedin vice president of business development, who came into the MarketWatch studios for an interview. See my blog for the interview with Rabois.

So, how much money is Linkedin making? Rabois wouldn't provide any details about cash flow, only to say that the service has been profitable since March, when Linkedin had 45 employees.

Today, Linkedin has 70 employees and estimates to be a year behind popular social network Facebook in generating sales, according to Rabois. That means Linkedin is set to generate between $45 million and $60 million next year. Linkedin CEO Reid Hoffman boldly predicts the company will hit $100 million in 2008.

Now, Linkedin's valuation certainly pales in comparison to the valuations given to broader social networks Facebook, YouTube and MySpace, which News Corp (NWS) paid $580 million for last year.

In fact, its valuation is relatively reasonable. Based on Linkedin's revenue run-rate, and its post-money valuation of $250 million, it's being valued similar to Monster.com (MNST), which trades for about 5 times sales.

These sites are so popular that advertisers are expected to spend nearly $900 million across all the social networks next year and more than $2 billion by 2010, up from $350 million last year, according to eMarketer. See Net Sense: Social networks will drive growth.

News Corp's MySpace alone is estimated to generate between $400 million and $500 million in calendar year 2007, according to Richard Greenfield of Pali Research.

Regarding competition from Facebook and Monster.com, Rabois thinks Facebook users will upgrade to LinkedIn for the "professional" look, that no one used Monster.com except the jobseekers, and job seekers on LinkedIn bring in their networks with referrals and recommendations adding value to their professional LinkedIn online resumes.

Microsoft and other corporations pay up to $100,000 a year to use the LinkedIn database for recruiting.

There's a lot of interaction, and those seeking to hire or those looking for jobs can quickly find contacts with the information they need. And It's not limited to job seekers or recuriters. LinkedIn provides a powerful Venture Capital network too.