THE BLOG
06/14/2013 04:53 pm ET Updated Aug 14, 2013

The LinkedIn Dilemma

Most of us spend a quarter to a third of our days working. Jobs and employment are by definition a key driver of all economic activity, continue to have structural inefficiencies and comprise the largest "lead generation" category of all. It's not a stretch to say that LinkedIn could be the most valuable and powerful social network of all, and yet that which is the driver of the majority of its revenue is also the one thing that holds it back from realizing its full potential: recruiters.

In 2004 I had a job at a rapidly growing startup in Silicon Valley. Our CEO happened to wander by my desk and noticed I was looking at a list of LinkedIn profiles. He said he didn't have an account but asked me to show him who from the company was on LinkedIn. It was a fairly small number of people, but one employee's name and title caught his eye, and he remarked that this person had indicated their title was something a bit grander than it was in actuality. The CEO chuckled: perhaps he was looking ahead to what might happen if this thing took off.  The CEO's fascination was one of many factors that piqued my interest about LinkedIn, and I later joined LinkedIn as their first Director of Marketing in 2005. Only later did I come to realize the kind of mixed emotions a CEO could have, given the heavy use of LinkedIn by recruiters (now that LinkedIn now has true scale).

(By the way, long after I'd left, that startup implemented a novel scheme to frustrate recruiters who would typically guess "firstinitial.lastname" or similar, and send out unsolicited emails to employees. They added a random two-digit number to every new employee's email account. Clever but not exactly a vote in the confidence of the company's culture...)

I left LinkedIn to pursue my entrepreneurial dreams (eventually founding my company Optimal in 2008*) - and have remained a huge fan of LinkedIn the company and service.

Here is the "LinkedIn Dilemma": do I encourage my employees to use LinkedIn? I know for a fact that LinkedIn is a powerful tool for sales and business development. It's also a great way to follow companies and get great content and viewpoints that can help people understand what's going on in our space and grow not just in their current role but in their extended areas of interest. But I don't want recruiters to call my employees. I don't want them distracted. I also know that some people think of recruiters as acting in their interests, but just like all of us they have mortgages to pay and families to feed and will go where the money is -- you can't fault them for that. I know some great recruiters who truly are looking out for the people they work with, but I've dealt with plenty that don't. Recruiters perform a valuable function, but like real estate brokers the "Principal-Agent problem" can lead to sub-optimal outcomes for everyone.

By all accounts, LinkedIn is doing a phenomenal job of adding editorial content shared and read daily by millions of its users, and has established itself as a real business content destination. Acquisitions like SlideShare ($119mm) and Pulse ($90mm)  make a lot of sense to bring in existing business-oriented third party content and wrap it into the business network. Companies are building profile pages, adding links to products and services, and starting to post regular updates to their followers.

But LinkedIn's economics are still driven by its "Talent Solutions", which comprised 57 percent of their revenue in the last quarter and has been growing its share of the whole revenue pie.

LinkedIn founder and Executive Chairman Reid Hoffman has often said (and I agree) he feels that LinkedIn has been underutilized by many who don't grasp the full value on offer. In a Wired article last year:

All LinkedIn needs to do now is enlighten its users to the full power of the platform. "Ask the average person," Hoffman says with frustration. "They think it's a place they keep their CV online and maybe have some connections with people they know professionally. They don't think of it as a place to get business intelligence, to research problems, to establish an online presence where other people in the network can find them. It's as if we're a screwdriver in a world where people don't quite understand screws. If Americans really learned how to use LinkedIn, it would raise the country's GDP."

I don't think it's sensible to fight against transparency. Fear has its place at the right time for a leader, but transparency is not something you can afford to be afraid of anymore. I would encourage everyone in our company and industry to get on LinkedIn and make sure their profile is robust, they're networking with others, they're sharing job listings with people who can refer others to their company and doing myriad other things to advance their careers not just short-term. I know not all of these things are in their current employer's (short-term) interests. But it's up to our team to make sure that everyone feels like they have great career growth prospects here and we should hold ourselves to high standards.

Is the right answer for LinkedIn to diversify their revenue stream with advertising? It makes a lot of sense and they will. Not every CEO will react the same way to the LinkedIn Dilemma - but if LinkedIn continues to grow, and is successful in being a valuable knowledge center for business people, it may not matter one way or the other.

*Optimal is an analytics/advertising technology startup with offices in San Francisco, Palo Alto, Chicago, New York and London.