Can startup Bright help LinkedIn get over its equilibrium?

By Carmel DeAmicis , written on February 7, 2014

From The News Desk

Following its 4th quarter earnings call, LinkedIn's stock fell in after hours trading yesterday. That's despite the fact that its revenues were higher than expected. Analysts have chalked it up to LinkedIn's 2014 forecasts, which were roughly $110 million less than the industry's. They also blamed LinkedIn's slowing sales growth.

Just like Twitter, LinkedIn has hit a scaling bump. It has built out its core group of users and monetized them with a few different products, ranging from its "Talent Solutions" recruiting tools to its marketing offerings. But how does it keep getting bigger, tackling new markets, and gathering more customers? It's starting to settle into an equilibrium, one that it will need to shake off to keep investors happy.

It's perhaps not a coincidence that at the same time LinkedIn is staring up the second half of the scaling hill, it announced its biggest acquisition to date. The corporation spent $120 million in stock and cash to acquire recruitment startup Bright. As we've covered, Bright is a company aiming to be the next generation In September, it ranked fourth in traffic in employment recruiting sites, behind Monster and Indeed.

Bright has amassed resumes from job seekers and uses data analytics to give each resume a grade for a specified position. The company surveys employers about how qualified they think certain candidates are, and then algorithms extrapolate that information to other applicants in the sector, building the framework.

As LinkedIn's VP of product for LinkedIn Talent Solutions explained in a blog post, Bright's employees can help LinkedIn get better at matching recruiters to the best candidates. This is crucial for the company, because unlike Twitter or Facebook, whose bulk of revenue comes from ads, the majority of LinkedIn's revenue comes from its headhunting and human resources offerings. To keep growing its revenue, LinkedIn needs to develop matchmaking skills in various verticals, and maintain its position as the dominant platform for job seekers.

It faces threats from a variety of sides. As Pando covered this week, vertical social networks are seeing their second coming with work-related platforms. Companies like Spiceworks, GitHub, Edmodo, ResearchGate, GraphCAD, and Practice Fusion have raised a sum total of $454.6 million in venture for their vertical social networks. Most of them offer a robust job posting and recruiting feature that eats into LinkedIn's territory.

For example, Spiceworks meets the need of IT professionals by giving them a forum to connect, discuss questions, and learn about the latest products. One third of the world's IT professionals are on it, and in October Spiceworks introduced a job recruiting feature to become "LinkedIn for IT professionals." GitHub, which started out as a tool for collaborating on code among developers, has quickly become a place for companies to find the best and brightest coders out there. Edmodo does the same with teachers, ResearchGate with scientists, GraphCAD with mechanical engineers, and Practice Fusion with doctors.

Ben Boyer, Managing Director of Tenaya Capital and an investor in three of these platforms, told Pando, "I do think some of these businesses will erode some of LinkedIn's business over time."

In order to keep growing, LinkedIn will need to beat these companies at the job recruitment game, and ensure it maintains its dominance over any other professional social network that might arise.