Analysis Report: LinkedIn Corporation - Research Paper Example

Analysis Report: LinkedIn Corporation Table of Contents Executive Summary 1 Introduction 2 Competitive Analysis 3 Internal Analysis 3 Strengths 3 Weaknesses 7 Opportunities 7 Threats 7 External Analysis 8 Strategic challenges 8 Political 10 Economic 10 Social 11 Technological 11 Legal 12 Ecological 12 Porter's Five Forces 12 Conclusion 14 Strategy recommendations 15 Executive Summary This competitive analysis report examines the competitiveness and strategic challenges of LinkedIn Corporation. The report critically analyzes the strategic positioning of the corporation using data obtained from a variety of sources including university sources, legitimate internet resources, articles, news reports, government data and published journals. The report can be useful to any stakeholder in the industry seeking to engage with LinkedIn in supplier, consultant, employee or other capacity. However, the report is designed specifically for the management of the company, with recommendations on how to maintain competitiveness in the long run. The scope of work was premised on an analysis of the competitiveness of the corporation in comparison to other players in the social media industry. The Key findings are that LinkedIn has adopted a blue ocean strategy to achieve competitiveness with a differentiation strategy focused on professional services. This has enabled it to be favorably positioned in the industry as an industry leader and offers prospects for sustainability in the future. Introduction LinkedIn Corporation operates the largest professional network in the world that is functionally based on the Internet (PR News, 2011). It currently has more than 414,000,000 members from more than 200 countries (LinkedIn.com, n.d.). Figure1. - LinkedIn Membership Worldwide (LinkedIn.com, n.d.) The rate of joining LinkedIn according to the website is more than two new members every second. It is rated highly by recent college graduates and students totaling more than 40 million. This is considered to be LinkedIn's fastest growing demographic within the emerging trend of employers utilizing LinkedIn data for recruitment and other human resource purposes. The company was founded and started operations in a living room. It officially launched in 2003 and had grown to be a public held company with a business model that is diversified. The company earns revenues from marketing solutions, talent management solutions, and premium subscription products (Burdick, Fehler, Kincaid, Klein & Ryan, N.d). The premium offering is currently available in 24 of the world's main languages, has more than 9200 full-time workers and offices in 30 cities globally. Executives from all the Fortune 500 companies are also users of the website. LinkedIn has adopted a blue ocean strategy to achieve competitiveness with a differentiation strategy focused on professional services. This has enabled it to be favorably positioned in the industry as an industry leader and offers prospects for sustainability in the future. Competitive Analysis Internal Analysis Strengths 1. Strong financials to fund projects Figure2. - Graph Showing Income The graph shows that the operating income for the firm has significantly increased from 2014 to the last quarter of 2015.It is projected that the operating income will continue to increase. The result is that the firm will rely less on income from financing. Investment income is also likely to stabilize. Figure3. - Graph Showing Assets and Liabilities The graphs show a significant growth in the asset base of the company from 2011 to 2015 by more than 65%.This is a strong sign for future endeavors of the firm concerning financing operations and meeting debt obligations. Figure4. - Income Statement (LinkedIn.com, n.d.) The Income statement shows the increase in revenues that the firm has experienced over a three year period. It also captures the strategic increase in investment in research and development by the firm over the same three-year period from $257 million to $775 million. This is important in outlining the firm's strategy to come up with new products and services to remain competitive in the long term. Figure5. - Balance Sheet (LinkedIn.com, n.d.) The Balance Sheet captures the strength of the firm concerning the total assets and total liabilities. The company has a strong balance sheet with the total assets being about three times the total liabilities of the firm. Figure 6. - Cash Flow Statement (LinkedIn.com, n.d.) The cash flow statement also captures the firm’s ability to meet financial obligations when the need arises. To add to these strong financials, the firm also has a solid reputation among the competition and diversified revenue streams (Economist.com, 2010). It is also considered to be a Market leader and first mover with an international presence as compared to its competitors in the industry. Weaknesses The major weaknesses of the firm were concerning Privacy issues and security vulnerabilities and inadequate offerings for some industries such as singers, actors or doctors. There are also some Cultural barriers and weak presence in countries such as China and India and emerging markets limit its ability to gain new subscribers and expand its reach in these areas. Opportunities The underlying opportunities for the firm are based on the increasing global population; globalization and increased literacy and access to internets services make the whole world a potential market. The Trends towards internet use on a daily basis by individuals and businesses also offer strong prospects for the firm especially concerning Opportunities in selling products to companies due to their increased presence on the internet. There are also opportunities for exploring the Unexploited and growing market in Asia and Africa (Emerging markets). Threats Threats to LinkedIn are based on the fact that the industry is dynamic and volatile with various potential competitors. There is also a threat if firms choose to explore the Blue Ocean in people that do not use the internet or are not interested in professional networking. There is also a risk of Fake users and thereby possible unreliability of data The main competitors in the social networking industry for professionals are country specific sites that are well established. They however also pose a threat to the firm. These include firms such as Xing.com in Germany or Viadeo in France. Viadeo also has subsidiary websites that service Asia and China. External Analysis The internet services industry more so professional networking is a web based industry that provides means for users to have various interactions over the internet. This industry includes firms such as Google, Facebook, Instagram, and Pinterest among others. While these operate at the global front, some also operate at a more local level based on specific countries such as Badoo in Russia, Nexopia in Canada, and Tagged in Spain among others. The main competitors of LinkedIn include Facebook, Google+, and Viadeo, which is a company based in France and has 50 million subscribers from a total of 186 countries as well as Xing, which is German based and has 13 million subscribers from more than 190 countries. Services from LinkedIn are provided either free of charge or for payment of a premium to get additional features. Strategic challenges Strategic challenges in the industry include the ability and tendency of firms to provide offerings that are similar in nature. For example towards the end of 2014, Facebook announced plans to enter the market targeting enterprises with a version of its social network that has widely been considered to be out to compete with Google Drive and LinkedIn. The new product dubbed Facebook at Work has similar features and offerings that LinkedIn has (Wright, 2015). As a market leader in developing a networking site for professionals, LinkedIn has been able to keep the competition at bay. According to Forth (2015), it uses a closed ecosystem to offer services to users. The users of the platform are on average five years older than Facebook users and prefer to have their personal and professional lives separate. As shown by the revenues in the Fourth Quarter of 2015, 62% of the firm's revenue came from Talent Solutions, 21% from Marketing Solutions and 175 from subscriptions to its premium offerings. The competitive advantage derived from the strength of more than 400 million users has enabled the firm to provide more value to the users, advertisers, and corporate recruiters. Figure 7. -Revenue Distribution in 2015 by Revenue Stream (LinkedIn.com, n.d.) LinkedIn has a licenses corporate recruiting solutions tool that gives recruiters the ability to access the profiles of individual users and allow them to search and recruit talent making it possible to find specialized talent for jobs that they want to be filled. According to Stone (2010), the website offering has also developed a rich database of professionals making it possible to promote jobs in the click of a button. Prospective employees passively develop their profiles and add content to the website while prospective employers seek such employees actively. Political There is an emerging concern by political players and regulators on matters of privacy, illegal conduct using social sites as a medium, unauthorized spread of information concerning national security and aspects of money laundering or slave trade. These may restrict the operations of LinkedIn in the future in some jurisdictions especially those with authoritarian regimes or impose extra costs which may be transferred to users leaving such users to avoid using the service. There are also emerging issues on taxation and employment processes due to the unclear nature of the business conducted online. Economic Fluctuations in the global economy can affect business for LinkedIn especially concerning its Talent Solutions offering which may be seasonal in nature. Marketing may also the slowdown in some seasons where people are likely to spend less money or spend less time on the internet. According to Fraser & Dutta (2008), the cost of accessing internet services which are independent of the control of LinkedIn may affect the use of the platform in some jurisdictions due to underdevelopment or high cost of doing business. There are foreign exchange risks as the firm ventures into new territory concerning transaction costs, rental space, payment for staff and equipment. Future finance needs may also limit payment of dividends to investors in the future due to the need to find new investors or additional resources for the firm. Social The social aspects of interaction may overtake the need to use online platforms to search for employment. There is a risk of the platform becoming another point of making casual rather than professional contact. Issues of privacy among other elements of ethical use of data are also important in a world that is increasingly information based. People may be comfortable about using online platforms to search for jobs, but there are worries about privacy policies and legitimacy of some jobs posted on the websites. Technological According to Crompton, Sautter & Sautter (2011), the constant advancement and innovation of new technologies impacts the advancement and direction that industry takes. The new technologies bring about solutions to existing challenges and also create new opportunities. These technologies may be proprietary in nature or may be open source. The proprietary ones may give the firms that own it a competitive advantage while the opens source ones may advance the same competitiveness or advantages to all the players in the industry. Trends indicate a need to upgrade as new capabilities are achieved. Communication shutdowns and lack of internet access also limit the extent to which LinkedIn can offer services to its users. There is also a high dependency on proprietary search engines such as Google to direct traffic to the websites and this has the potential to affect the competitiveness of the firm in the future. Legal Martin (2015) indicates that as an enterprise that operates in different jurisdictions, the operations of LinkedIn are subject to various national and international laws as well as regulations on online businesses. Many of these are still evolving or being developed and may be interpreted in ways that may affect the operations of the firm either positively or adversely. These include the determination of matters of liability, privacy claims, intellectual property rights infringement as well as claims of unfair competition. Ecological The emergence of concerted efforts by various entities in commerce and industry to adopt Green Initiatives has the potential of offering more opportunities to digital platforms. For example, the use of digital curriculum-vitae made possible by LinkedIn may continue to be an option for many employers (Crompton, Sautter & Sautter, 2011). Environmental activities may also affect the operations of the company such as access to LinkedIn servers and assets in various places around the globe. It may take some significant time for service to be re-established in the event seismic activity or other force-majeure affects operations of the company. Porter's Five Forces The rivalry in the industry is moderate. This is mostly because LinkedIn is a leader among professional networking services provider (Marvin, 2013). Users also have a variety of options in the market which is rather dynamic in nature. It is also easy for competitors to react to competitive actions. The rivalry in some instances is at a national rather than a global level due to localised firms. The threat of new entrants is moderate more so due to the high capitalization required in the industry. However existing firms in the industry may seek to advance products and services that may rival LinkedIn products. Such firms include Microsoft, which may opt to use its online services offering to create value for professional users (Crompton, Sautter & Sautter, 2011). The market capitalization of firms in the market is significant with LinkedIn having a share value that is higher than most firms including Facebook Inc. as shown in the table below. Company name Price Change Change % d | m | y Market Cap LNKD LinkedIn Corp 116.39 +2.27 1.99% 15.46B GOOGLE Alphabet Inc. 729.05 +6.94 0.96% 497.57B TWTR Twitter Inc. 18.31 0.00 0.00% 12.42B DHX DHI Group Inc. 7.48 -0.23 -2.98% 396.37M FB Facebook Inc. 107.16 +2.59 2.48% 308.25B IPDN Professional Dive... 0.323 +0.033 11.31% 3.87M YELP Yelp Inc. 19.07 +0.73 3.98% 1.50B MWW Monster Worldwide... 2.94 +0.04 1.38% 268.03M JOBS 51job, Inc. (ADR) 28.48 -0.66 -2.26% 1.63B GOOAV Google Inc. - Com... 568.67 MSFT Microsoft Corpora... 52.65 +0.83 1.60% 413.47B Figure 8. - Most Recent Annual Data for Related Companies The threat of substitutes or New Products/Services is considerable due to the high innovation in technology and significant investment in research and development by firms in the industry (Slutsky, 2010). The Bargaining Power of Suppliers is also low due to many suppliers being available in the market as well as the use of Java programming in the web page which makes it easier to find other programmers offering the same services. Bargaining power of customer/buyers is low is low due to very minimal switching costs and the fact that LinkedIn is an undisputable leader in professional social networking platforms. Conclusion The strategic implications of the external and internal environments of the firm reveal that this situation is likely to subsist in the long run as firms in the industry continue to specialize and get into contractual engagements as well as proprietary deals with new innovators in the industry. However, it is important to note that The Strength of LinkedIn comes from its unique network. The network offers the company an immense competitive advantage based on the blue ocean strategy. LinkedIn provides a way of passive participation in the job market while at the same time making use of the LinkedIn platform to enhance their job performance. It has a stronger presence internationally as compared to its main competitors. The market-share internationally according to the number of subscribers globally indicates a favorable position for the firm. The competitive advantage that LinkedIn has is that it is growing at a faster rate, and users want to network with professionals at a global level rather than just in their own countries. Global networks, therefore, prove to be more attractive to users. However, there is a risk of the country specific sites going global especially targeting areas that LinkedIn has significant market share or areas where it has most of its subscribers such as the United States of America. Strategy recommendations Some strategic recommendations for the management and decision makers of LinkedIn Corporation are as follows: 1. Increase the membership and subscription base by seeking to venture into the emerging markets as these are considered to be the new frontiers of business and professional development. This can be achieved by exploring the markets in Asia and Africa. 2. The company should also seek profitability as a way of encouraging further investment and financing for expansion activities. 3. Develop systems to effectively prevent and deal with security breaches as well as policies on information sharing and use by third parties. 4. Develop strong structures for management of emerging legal issues such as intellectual property rights as well as interpretation of laws governing the business. LinkedIn can be at the forefront in advising regulators on the way forward concerning online transactions such as in talent management, privacy and other emerging issues of concern. 5. LinkedIn is currently favorably placed and must adopt a strategy of international expansion as well as the addition of value-added services through the consistent acquisition of innovations, investment in internal projects and advertisement in mainstream media as a way of reaching users from different regions. It can also adopt as a corporate social responsibility project, investment in energy projects and internet service provision projects that allow people in remote places to enjoy the offerings of the internet. References Burdick, L., Fehler, I., Kincaid, N., Klein, P., & Ryan, D. (n.d.). The Importance of the Online Network: LinkedIn’s Strategic Position and Power. Retrieved February 23, 2016, from http://www.thunderbird.edu/blog/faculty/washburn/2011/12/18/linkedin Crompton, D., Sautter, E., & Sautter, E. (2011). Find a job through social networking: Use LinkedIn, Twitter, Facebook, blogs, and more to advance your career. Indianapolis, IN: JIST Works. Economist.com. (2010). Social contracts. Retrieved February 23, 2016, from http://www.economist.com/node/15350994 Forth, S. (2015, May 18). Strategic Choice: LinkedIn opts for a closed garden - Team Fit. Retrieved February 23, 2016, from http://hq.teamfit.co/strategic-choice-linkedin-opts-for-a-closed-garden/ Fraser, M., & Dutta, S. (2008, December 25). Online social networking and the economic crisis. Retrieved February 23, 2016, from http://knowledge.insead.edu/economics-politics/online-social-networking-and-the-economic-crisis-1839 LinkedIn.com. (n.d.). About Us | LinkedIn Newsroom. Retrieved February 23, 2016, from https://press.linkedin.com/about-linkedin Martin, R. L. (2015, May 05). The First Question to Ask of Any Strategy. Retrieved February 23, 2016, from https://hbr.org/2015/05/the-first-question-to-ask-of-any-strategy Marvin, G. (2013, May 05). Study: LinkedIn Positioned To Be Professional Content Marketing Leader, Testing Monetization. Retrieved February 23, 2016, from http://marketingland.com/study-linkedin-positioned-to-be-professional-content-marketing-leader-testing-monetization-50722 PR News. (2011, September 05). No Longer has Your Mother’s Employment Database, LinkedIn proved Powerful for PR - PR News. Retrieved February 23, 2016, from http://www.prnewsonline.com/featured/2011/05/09/no-longer-your-mothers-employment-database-linkedin-proves-powerful-for-pr/ Slutsky, I. (2010, December 6). Why LinkedIn Is the Social Network That Will Never Die. Retrieved February 23, 2016, from http://adage.com/article/digital/linkedin-social-network-die/147475/ Stone, B. (2010, September 01). LinkedIn's Overseas Route to an IPO. Retrieved February 23, 2016, from http://www.bloomberg.com/bw/stories/2010-09-01/linkedins-overseas-route-to-an-ipo Wright, Chris. (2015, January 05). Why 'LinkedIn at Work' would be much more interesting than 'Facebook at Work' Retrieved February 23, 2016, from http://www.techradar.com/news/internet/web/why-linkedin-at-work-would-be-much-more-interesting-than-facebook-at-work--1278981 Read More