Recession lifts social networking site LinkedIn

With more job seekers on the prowl, LinkedIn's traffic has doubled and its multiple revenue streams have turned into profit. Take that, Facebook and Twitter.

By Jessi Hempel, writer

NEW YORK (Fortune) -- Looking for an online mirror of American economic woes? Check out the professional social networking site LinkedIn, where activity from Lehman Brothers employees and ex-workers spiked 315% from August to September of last year, when the bank was going through bankruptcy proceedings. LinkedIn's fastest growing region? Detroit.

Unlike the job seekers (and those fearing unemployment) that troll its jobs boards, LinkedIn is thriving in the recession: Overall, traffic has more than doubled to 6.9 million users in February from 3.3 million a year earlier.

For a short time it seemed LinkedIn's best days were behind it. After a big initial splash, especially with the professional set, LinkedIn seemed to lose buzz to fresher, jazzier sites such as Facebook, which has started to gain traction among Baby Boomers. (Facebook today has 175 million-plus members). But it has something the Facebooks and Twitters of the world do not: profits. For the past two years, it has been in the black, according to remarks that founder Reid Hoffman made at the World Economic Forum in Davos last January. With a billion dollar valuation, the company has raised close to $100 million so far. Hoffman told TechCrunch's Michael Arrington most of that cash has not yet been spent. "We can go public anytime we want to," he said.

The site's value comes from its network. With the number of job seekers far surpassing the available jobs in most professions, it's not enough to simply submit resumes to human resource departments. Those who find jobs must be aggressive about getting a foot in the door. "The number one way you find a job is through referral and LinkedIn is the biggest referral network out there,"said Charlene Li, founder of the research outfit Altimeter Group.

This worked well for Seema Kumar. Kumar, 31, began a job search on LinkedIn last summer while working as a product manager at software company VMWare. The site helped her connect to people from prior jobs with whom she'd lost touch. "I looked at Craigslist for postings, but LinkedIn had a different caliber or quality of posting," she said. "It offered a more comprehensive way for me to look for opportunities." In November she began work as a product manager at social application maker Slide.com, a job she found on LinkedIn.

Employers also increasingly rely on LinkedIn to recruit and vet their potential hires. Drew Patterson, vice president of marketing for Kayak.com, used the site to find two of the five employees he hired last year, paying $195 to list his job posts for 60 days. In addition to his fellow Harvard alumni, and his former Columbia Business School classmates, Patterson considers LinkedIn among his most useful job networks. "LinkedIn is great because you have some sense of where this person is and how they fit into your world," he said.

To capitalize on the enthusiam, the company recently installed a new management team. Founder Reid Hoffman became CEO and chairman. Jeff Weiner, who left Yahoo last year, took over as interim president. And former Google director Deep Nishar joined the site to lead product management in December.

This team will experiment with new ways to make the site both more relevant and more profitable. Unlike many traditional boards, which receive revenue from job postings and thus lose money when companies are hiring fewer people, LinkedIn has many ways to make money. In addition to job postings and traditional advertising, it has built a healthy business out of licensing its software to companies for internal recruiting. In addition, individuals can pay for premium subscriptions.

Not everyone believes that LinkedIn will be able to distinguish itself from other social networking sites over time. "How sustainable is it given that a lot of Facebook use is for professional interaction?" asks Gartner analyst Ray Valdes.

Indeed frustrated job seeker Cheryl Dowling, 33, from Charlotte, NC says she has made more potential job connections on LiveJournal and Facebook than LinkedIn, explaining, "The people that I have friended in LJ and Facebook are actual friends that seem more interested in helping one another out, and are more likely to take that extra few minutes to pass on information when they hear it."

But LinkedIn has never billed itself as a place friends go to connect. It's about professional presentation. And with one member signing up for the site every second, it's growing increasingly useful to employers and employees alike.  To top of page

More Galleries