When it comes to social networking, Facebook garners most of the attention. And for obvious reasons: Facebook is the largest social network in the world, accounts for the bulk of the spending on social ads, went public earlier this year in a record-breaking IPO and has had a volatile experience as a publicly-traded company.
LinkedIn is, by comparison, far less buzz-worthy. But don't let that fool you: the publicly-traded professional social network is valued at more than $10bn and its shares trade at a mind-boggling 695 times earnings -- a PE ratio five times that of Facebook shares.
Why are investors so bullish on LinkedIn? While Facebook is tirelessly working off to prove that it can profit from its billion-user user base and live up to Wall Street's significant expectations, LinkedIn has demonstrated that monetizing a professional social network is a lot easier than monetizing a consumer social network.
From Pro Accounts and Company Pages to Polls and Analytics/Research, LinkedIn has developed a portfolio of paid offerings that cater to both power users and marketers alike.
LinkedIn may not be as dependent as Facebook on advertising, but advertising stills accounts for a substantial portion (25%) of the company's revenue. And there's good reason to believe that the company will be able to scale its ad revenue significantly: the social network's ads allow marketers to "connect with the world's largest audience of active, influential professionals." Compelling, except for one shortcoming: marketers have been forced to use a LinkedIn interface to manage their self-service ad campaigns.
Wooing marketers through developers
Yesterday, LinkedIn announced a new Ads API that will allow developers to build interfaces that allow marketers to more efficiently create and manage their LinkedIn ad campaigns, and to do so on platforms that marketers use to manage campaigns across multiple sites.
At launch, LinkedIn has partnered with several companies, including Adobe, Bizo and Unified Social, who have implemented solutions using the Ads API. For LinkedIn, the proposition is simple: if marketers can purchase ads more easily, and feel that they have better tracking and reporting of them through third-party tools, they'll invest more in their LinkedIn campaigns.
For marketers, the ability to use third party tools can, in theory, promote campaign effectiveness. According to Bizio CEO Russell Glass, a dozen of his company's clients have been using the Ads API over the past several months and "by all accounts it works." In one case, a client is said to have reduced its cost per lead by 60%. If other marketers can achieve similar performance gains, it could go a long way towards bolstering LinkedIn's ad revenue, which at $64m in the last quarter, is still relatively nascent.
A Facebook-like trajectory?
"LinkedIn was in some respects behind, and this catches them up," Bizio's Glass told Adweek. "Fundamentally in today’s world if you don’t have programmatic access and API access [to ad inventory], it’s just very difficult to scale," he explained.
As Adweek's Tim Peterson notes, Facebook's hundred-percent plus growth in ad revenue coincided with the roll-out of its own API for ad buying and while it would be wrong to attribute all of that growth to the availability of an API, there's little reason to doubt that LinkedIn's API will reduce unnecessary friction in the ad purchasing process. Friction that has probably held the company's ad business back.
Removing that friction could pave the way to a more lucrative future for LinkedIn, whose CEO, Jeff Weiner, sees the social network becoming an "economic graph" in the coming decade. If that comes to pass, you can be sure that marketers will be looking to buy a lot more ads.