Despite triumphing over its competitors and hosting over 5 million people on its network, LinkedIn has little revenue to show for its success or to sustain long-term operations. CEO Reid Hoffman and Vice President of Marketing Konstantin Guericke must decide on and implement a plan that will be effective in generating revenue by October 2006 to ensure success in its next round of venture-capital funding. They can either introduce a bundle of eight services for a monthly charge of $15 while maintaining core features of the site or change the product’s design feature by allowing members to contact each other without intermediaries, but for a fee.
LinkedIn should choose the first option to keep existing features and to bundle the 8 new premium services for the monthly payment of $15 to take advantage of their large user base while still maintaining the prospect for network expansion.
The initial plan was to run option two as it has great potential to generate revenue for LinkedIn (Exhibit A), even if only a fraction of users adopt it. But option two risks alienating relationship managers, 90% of the user base, who have little interest in approaching people beyond their immediate contacts and who find outside requests to be a nuisance. This option would also require LinkedIn to abandon its basic design feature, which relies on the trust factor for referrals, and diminish the networker’s role as intermediaries. Thus option two would discount two of its segments, as presumably, only contractors will find it desirable. Many members actually showed interest in option one, and when taking into account that the network size may decline due to alienation, option one appears to be the better route. It presents less risk and stays attuned to the needs of all three of LinkedIn’s segments (Exhibit B), therefore presenting the opportunity for more adoption. Also, looking at LinkedIn’s competitors in the Business-Networking Sites category, Ryze and Open BC were able to...
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