He Kōrero PākihiConnected, thriving

Apr 3, 2013

Opinion nā Brett Ellison

They arrive in my inbox every so often.

An invitation to indulge a colleague’s self-adulation. “I’d like to add you to my professional network on LinkedIn.” Oh how truly wonderful, I think, someone considers me worthy of their professional network. And then I delete. I often contemplate a reply, particularly when a networker describes his qualifications as “startegic”. However, the business-centric social website passed a major milestone this year – 200 million members.

LinkedIn appears to be tracking favourably in comparison to other internet companies, including Facebook. Founded in 2003, and launched in 2005, LinkedIn is promoted as a professional networking site, and the business has a broad revenue stream. Whilst there are free accounts, LinkedIn provides a service that many users are happy to pay to use. In the past six months, revenue from premium subscriptions increased by about 80 percent.

Corporate recruitment firms increasingly use the site to find the workers they need. It is not uncommon for many firms to request a link to users LinkedIn profiles, although a quick Google search will uncover the litany of corporate hyperbole that is common in most CVs. But corporate recruitment is a high-margin business for LinkedIn, with lucrative fees to find executives and other employees.

Corporate recruitment, and a 90 percent increase in the use of a talent solutions product, underpinned annual revenue of close to US$1 billion in 2012. Investors have subsequently bid up to US$163/share, more than triple the initial public offering (IPO) of US$45/share. As a product, LinkedIn is Facebook for suits. Culturally American, and advancing the corporate profile of users.

Social networking site Facebook, by comparison, may be the most efficient way to keep in touch with large groups of people. But is it an efficient way to spend one’s life? In total, all users spend 2.6 million minutes per day on Facebook “networking”, or, more likely, looking through pictures, and quasi-stalking other people. Enjoyable to some.

Surveys show that Facebook usage costs companies an average of 1.5 percent in total employee productivity. Nearly 80 percent of workers who have an account admit that they use it during work hours, some for as much as two hours a day.

As an investment proposition, it largely failed to live up to the hype. Floated in May 2012, the shares of Mark Zuckerberg were worth nearly US$19 billion. He is now US$5 billion poorer. The market felt the valuation was overly optimistic (by 28 percent). It’s still not clear to many how Facebook will generate sufficient profits to justify its hefty valuation. Perhaps its mobile applications strategy will unlock greater revenue, particularly as many millions of users are increasingly embracing smartphones and tablet computers. About 60 percent of its 1 billion members use the Facebook mobile application.

Back in Aotearoa, Trade Me has become commonplace for many households. A close friend was so preoccupied with a bid placed on rifle ammunition he wanted to check my iPhone at 30-minute intervals during a concert at a vineyard. I solved the annoyance by increasing his intake of wine. But it is common for Trade Me users to be lost in the “excitement” of bids. In one month in 2012, Dunedin City Council employees visited Trade Me over 500,000 times.

In 2006, founder Sam Morgan sold Trade Me to media group Fairfax for NZ$700 million (with an additional $50 million for key performance targets). However, Fairfax effectively saddled Trade Me with debt, and subsequently sold its remaining interests in 2012. Whilst they appeased the bankers, and enjoyed a capital gain, will they regret exiting an investment with significant user demand? The auction of a Jesus Christ pita bread had nearly 280,000 views in 2009. God only knows how many views there would have been had it been a date scone.

Most internet businesses thrive on the ethos of connectivity, and LinkedIn, Facebook, and Trade Me certainly lead much of this space. They support interconnectivity, and are incredibly innovative, with a core of extremely intelligent designers. But they are also driven by consumerism, with a dose of boredom.

But what of internet companies that enable business efficiency? Xero, an online accounting software firm, has enjoyed incredible growth in a short space of time. At present, all profits are reinvested to accelerate growth. Xero is now capturing a significant market share in the market for online, cloud-based business systems. And it is a first-rate support vehicle for small and emerging businesses. When it first listed in 2007, Xero was initially valued at NZ$55 million. By 2012, it had climbed to more than $500 million.

The architect of this success? Rod Drury, Ngāi Tahu.

There are a range of incredibly innovative businesses across the internet. Some fuel our ego and attention deficit disorders, whilst some drive our enterprise, and are truly exciting. Watch out for Xero in 2013, which is making small-to-medium business accounting enjoyable. And yes, Rod Drury has a LinkedIn account. And, he can spell