Search advertising is generally thought to be more powerful than display advertising because when a user searches for something they often have an intent to buy it. Social networks (along with email and other communications services) are amongst the worst places for display advertising on this measure as most users are there to talk with their friends and are not thinking about buying anything. As a result advertisers are only willing to buy ads on these sites at low rates and the general thrust in the industry, led by Facebook, has been to drive up these rates by targeting the ads based on data about the users, and even make them more effective by using information from people’s friends in the ads.
LinkedIn, however, is a little different. As the Financial Times pointed out this morning:
users come to the LinkedIn site with an eye to completing a transaction. They are potential sellers of a good (their professional services) for which buyers (employers) may pay a lot of money.
i.e. they come with intent.
That is why LinkedIn’s first quarter results were so strong. Revenues at $189m were up 101% on the year ago quarter, and net income net income was up 138% at $5m (that’s still low in percentage terms).
I’ve said before I think that sites which leverage social to help us do the things we already do more efficiently will be interesting investments over the next year or two. I stand by that, but would now hold LinkedIn up as an example of a company which has already had success and which fits that investment thesis. I am also refining the thesis to note that some community sites are strong on intent to purchase, which will likely result in superior monetisation.