Yesterday and today LinkedIn stock price went up significantly and more than recovered from the drop earlier this week following an analyst comment that claimed its newly boosted price had already priced in growth for the next couple of years. The reason, if there is one, that drives this round of increase, is the vague combo of news + guess of "possible deal to enter China". I said it's news + guess, and actually it is more guess than news. News gave only very limited information. LinkedIn founder Reid Hoffman met with a bunch of .com executives of China. That's the news, completely irrelevant to its entry to China market. None of those people would have a say about the "deal". Even if LinkedIn entered China, these folks are more of its competitors than partners.
Okay. Let's just assume LinkedIn already stepped into this 'potential' market. Then what? I could almost see its failure in China. The rationale can not be any simpler - In the business world in China, people link to each other in pubs and at dinner tables, not through internet.
I did a quick experiment. CIBC, ranked fifth in the big five Canadian banks, has "more than 42,000 employees". In LinkedIn, I typed "CIBC" in the people search box and got 41,727 results. On the equivalent side, wealink.com, the largest Chinese professional social networking site, gave me 226 results for the search “工商银行”, or ICBC, the largest bank in the world with 386,723 employees as of 2009. Nortel, the bankrupted telecom giant, returned 149,946 results in LinkedIn, while "华为" or Huawei, the fastest growing manufacturer in this sector, with 65,179 employees, gave me only 109 users on wealink.com.
TREFIS did a breakdown of LinkedIn stock price. Nearly half (45.2%) comes from job postings and recruitment services. Strong local brands have built their reputation and huge network in the mass recruiting market, while headhunters have taken their shares in the specialized segments. The other two components of LinkedIn revenue, premium subcriptions and ads, apparently relies on the popularity of the site. The depth of relationship it could build with its ad clients is a function of the depth of relationship its members could build with each other, through this network.
Having said that, I believe LinkedIn is going to be a tremendous success in the next decade. But not in China.
During the past 20~30 years, so many multinationals entered China betting on its adorable market size. Some succeeded, some failed, some still try to survive. How successfuly they could be simply depends on the level of its localization. Not just wrapping itself with a successful translation, but the deepest localization from the core of its corporate culture. I'll have more on this topic.
I posted this blog in a few groups on LinkedIn and generated discussions. My answer to some questions will supplement the original post.
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Finding management talents is tough in China for many multinationals entering this emerging market, but does it translate into success of LinkedIn?
First question is size of opportunity. Would the need of management talents from a bunch of foreign companies entering China suffice the growth of LinkedIn? I doubt it.
Second, could LinkedIn match multinationals' need with supply? As some folks pointed out, Chinese talents switch jobs quickly, without help of LinkedIn. Companies rely on headhunters to find talents for them. Then why do the talents need LinkedIn?
Last, localization is crucial to success of any foreign business in China, let alone recruiting being one of the most culture sensitive industries. I'm not convinced LinkedIn has much competitve advantage over its local competition such as wealink.com, which has been growing a professional network in China since 2004, but has yet achieved meaningful results that could be translated into financial success in LinkedIn business model.