Network effect

Network effect is seen as a phenomenon where a network service (SNS or PNS) becomes more valuable as the number of users increase. This phenomenon encourages continually increasing membership within the network. This can happen when a user adopts a network service initially to connect with current users, or later, when “everyone” is using the network service.

Although there may be a larger increase in new membership for SNS’s, it is stated throughout the LinkedIn case that new membership for PNS’s is likely to be more valuable to users because of the nature of the connection. Many people will not want to change PNS’s because they will lose their multiple connections already created (Yoffie et al. , 2009). The case examines the likelihood of SNS’s overlapping and taking over PNS’s. This outcome seems unlikely.

By examining Exhibit 6 (Yoffie et al. , 2009, p. 16), the correlation among factors such as age, income, college education, and position within an organization sets LinkedIn squarely within its target market. Also, Yoffie et al. indicates the distinct uses of professional and social apps on Facebook. The multitude of users who use social apps vs. lower use of professional apps shows that Facebook users are less likely to make their profiles into professional networking tools, leaving PNS’s like LinkedIn for leveraging their professional careers (Author, p. 14). Question #2

Emerging companies need to generate new dynamics that are modernized, innovative, and easily adaptive to survive in this world. The new dynamics should be economically viable for the industry because they affect issues of whether to pursue a build or a buy approach to expand globally. LinkedIn Corporation, a PNS, is used by professionals globally to interact professionally. Uses include recruiting, getting expert advice, group collaboration, and more.

Differentiating strategies were adopted by LinkedIn in order to separate itself from competition and answer the uestion of whether to utilize a build or buy approach. A build approach involves both monetary and other resource investments from the company. For LinkedIn, Investments in certain professional apps such as conference calendar, a tool used to indicate when certain conferences will be coming up, and which of a user’s connections will be attending, are examples of utilizing the build approach. The buying approach is where the company buys/merges with an existing SNS/PNS and integrates it within the existing systems.

Although this expands a company, it constrains the ability of a company to customize the existing network with its own. Therefore, a company & its procedures need to adapt to the technology it buys. If they use a build approach, the company can build to their own specifications differentiating itself from existing networks (No Quote, Does not answer question). Question #3 LinkedIn’s strategy is straight to the point, be the best in the market of professional networking services (PNS).

By focusing on providing a “virtual platform for professional interaction” (Yoffie et al. , 2009, p. 2), LinkedIn would provide various productive services to its users. Services provided include professional search, reference checking, recruiting, advice search, job searching & posting, and workgroup collaboration, which were successful because they allowed their users to become more effective in their professional careers. Also, its success was accounted for being involved with countless industries, rather than focusing on a specific industry like other PNS providers.

Within its strategy, LinkedIn encompassed three premises which attributed to LinkedIn being the best in PNS, “remain a strongly differentiated category from SNS,” “maintain a hold on professional users for reasons both positive and negative,” and “ embrace establishments rather than fight them” (Yoffie et al. , 2009, p. 3). LinkedIn’s success strongly accounts for maintaining a quality PNS by providing a productive atmosphere, which involves being separated from SNS.

It is important for LinkedIn to remain separate from SNS capabilities in order to maintain its high PNS quality and core values. The risk of inheriting this strategy’s premise involves losing the users that want a network that hosts both professional and social networking capabilities. LinkedIn could potentially lose users to SNS businesses, like Facebook, who are starting to provide PNS services in its SNS atmosphere. In the second premise for its strategy, holding its users for positive and negative reasons also brings both success and risk.

The positivity hold, having users create positive professional identity, is a success because it is a competitive advantage over SNS providers who only provide social identity or cannot separate the two. But holding onto its users for negative reasons promotes the similar risk as mentioned in the first premise. When users think to switch from LinkedIn to a SNS that provides both SNS and PNS capabilities, LinkedIn banks on the fact that they believe users would not put losing its contacts in jeopardy.

This negative hold on LinkedIn users is a risk because it is quite possible that sooner or later SNS companies that promote both PNS and SNS capabilities will also have relatively the same contacts as LinkedIn. It is risky to assume that LinkedIn can keep users based on the premise of this assumption. Lastly, the third premise for its strategy brings on success. Having companies embrace the concept of LinkedIn in the end creates more users. LinkedIn is designed so that professionals will be more productive and more effective in their careers. If LinkedIn does eventually provide SNS qualities in its service, this could pose as a risk.

Companies might not want to promote a network that could waste work time with their employees playing games and spending time on personal social interaction on the network. Therefore, companies would end up fighting LinkedIn. LinkedIn has always incorporated a control over its network as part of its strategy. Keeping out non-professional information and photos helps keep the quality of its PNS professional and on top. It also embeds value propositions for its professional users as well as its corporate users which revolve around a simple user interface.

Although this is what maintains its quality’s success, it also brings a risk by shying away companies who do not want to be part of a network that they cannot control. Lastly, LinkedIn is successful because of its strategy of how to obtain its revenues. Its five sources of revenue include advertising, subscriptions, job postings, corporate solutions, and primary research that evenly contribute to its earnings. If one of the sources does not do as well as expected, LinkedIn has the other four methods to rely on. Question #4 Companies implement strategies to achieve a target or reach a goal that may e becoming the market leader of the industry, increasing profits by a certain percent, or even attracting new members to use a professional network service.

As mentioned in the second week of classes, a company may choose one of the four Porter’s generic strategies that include differentiation, overall cost leadership, focus differentiation, and focus low cost to achieve competitive advantage (Kumar, 2010, p. 24). LinkedIn’s strategy is a focus differentiation since it was first founded, and its strategy has helped the company to become a leader in the PNS market.

The differentiation strategy involves constant innovation and providing users with what they need and want in a new or better manner than what competitors can provide. Therefore, LinkedIn and many companies in other industries may ward off its competitors through innovation, quality, and reputation although overlapping products may be present. While Facebook may present threats to LinkedIn with the intent to blur the distinction between SNSs and PNSs, LinkedIn would still maintain a competitive advantage in the PNSs.

LinkedIn has always focused on differentiating itself in the PNSs by providing users a different degree of privacy, standards, and quality tools to “…find job candidates for position in their company, to reach out to experts around the world in order to get advice and make better decisions” (Yoffie et al. , 2009, p. 4). LinkedIn differentiates from Facebook and other SNSs not only on the type of service that is provided, but also on the value it adds to the professional identity of each user, and the reputation it maintains.

SNSs such as Facebook and MySpace may be very popular and well known around the world for the types of applications available, the connectivity advantages, and the numbers of users within the network. However, the SNSs have presented privacy issues as well as reputation issues. As mentioned in class by Professor Kumar and Mehdizadeh (2010) in her article, SNSs provide a self-presentation characteristic of low self-esteem and high narcissism users.

Alternately, LinkedIn targets a long-term goal in the attempt to create a different type of environment, a “professional ecosystem” with the addition of applications and modules to help users increase efficiency in their work and portray the professional self. The existence or emergence of other PNSs would increase competition for LinkedIn; however, LinkedIn already has a well-established professional networks composed of top executives, CEOs/CFOs, and other important professionals that attract individuals who seek advice or just the possibility to connecting professionally.

LinkedIn’s users may have difficulty and a cost to switch networks, but they also find value in the services available. The continuous promotion of the benefits that can be obtained and the innovation of new modules such as LinkedIn news and customizable settings will help the company ward off competitors. Question #5 Question # 5a The distinction between social and professional is clear. This distinction likens LinkedIn to the Wall Street Journal ™, and SNS’s to publications like People™, indicating that creating a more social aspect to LinkedIn will depart from the needs and wants of their target market.

The expansion by Facebook into an open platform allowed third parties to develop social apps and created a “viral [spread]” across the network. Hoffman (Yoffie et al. , 2009, p. 7) stated that he wanted to prevent this within the LinkedIn network, instead insisting on stringent protocols and reviews of all new apps, so as to provide professionals with “. . . the right sort of tools to interact with their network. ” Maintaining a walled garden, as opposed to an open platform, is critical to continuing LinkedIn’s success. Like stated before, its strategy is based around being the best PNS in the industry.

Users flock to this website because of how LinkedIn keeps the network professional, promotes productivity, and enables users to advance their career’s success. Keeping this prestige will conserve LinkedIn’s quality and continue to attract its target market, professional users. Question # 5b LinkedIn should not broaden the scope to include elements of social networking. LinkedIn began and still operates since 2003 as a PNS. This strategy has allowed it to flourish, generating a customer base of 75 million users spreading around 200 countries, which includes professionals from all fortune 500 companies (Yoffie et al. 2009).

This growth can be attributed to its departure from obtaining the majority of its revenues from advertising, like SNS’s, and creating a focused concept that does not necessarily remove innovation within the network, but instead indicates a policy of professionalism throughout with the controlled inception of professional applications. Different from SNS, of which the majority of revenue is from advertising, LinkedIn has framed its revenue model on five sources: (1) Advertising, (2) Subscriptions, (3) Job Postings, (4) Corporate Solutions, and (5) Primary Research.

Steve Sordello, CFO for LinkedIn, stated “This model gives us a lot of sustainability, even if one of those revenue streams doesn’t succeed as we expect, we have others” (Yoffie et al. , 2009, p. 6). In order to sustain a competitive advantage, in 2007, LinkedIn change a policy to accommodate users who wished to upload a single professional head shot for identification. In 2008, LinkedIn launched a product called Company Groups that brought all LinkedIn users who worked for an organization into a closed forum which provides a collected, protected space for employees to talk to each other, as a part of application program interfaces (API).

Other launches included Conference Calendar, as stated above (Yoffie et al. , 2009). Question # 5c LinkedIn has created a successful user base in foreign countries. This growth is attributed to LinkedIn’s concept of build not buy, using an organic growth model, giving it a competitive advantage over its main foreign rival Xing. This advantage is through LinkedIn’s ability to control segments of its business outside the U. S. , separate from Xing who buys outside networks limiting its control, in addition to Nye’s observation that “being in English first” is an advantage.