I am part of a group of technology entrepreneurs and managers where we periodically discuss case studies. Of all of them, the LinkedIn study especially stands out in my mind. Why?
- It gets at the essence of what all ventures (especially start-ups) need to deeply understand:
- Segmentation: Who are my customers?
- Positioning: Why do they care about me?
- Monetization: Do they care enough about me to pay me?
- It shows the importance of addressing the above questions periodically. In fact, the case study profiles LinkedIn two years into their existence (mid-2005) when they already had over 4.5M members but insufficient revenues.
The segments that LinkedIn ultimately identified were
- Relationship Managers – 90% of the user base who mostly keep up with people they know
- Networkers – 5% of the user base who indiscriminately build relationships and often serve as intermediaries
- Contactors – 5% of the user base who are recruiters, sales, business development folks
LinkedIn used this discovery to update their freemium model. While Relationship Managers represented the majority of the user base, it was unclear if they would pay for premium services. But, this large self-qualified 4M user base was an attractive target to the Contactors and unique to LinkedIn. This motivated LinkedIn to introduce the successful paid service, InMail, which lets Contactors reach the LinkedIn user base:
Have you performed a similar exercise in your company recently? When I relate this LinkedIn study to various points in the history of Faves.com and exploit the benefit of 20/20 hindsight, certainly a few things emerge that I would have done differently. But, that’s for another post:)