LinkedIn's Overseas Route to an IPO

Sept. 2 (Bloomberg Businessweek) -- The road to a highly anticipated initial public offering for professional networking site LinkedIn may go through the United Kingdom, India, Australia, the Netherlands, and Canada.

The Mountain View (Calif.)-based company has always attracted users in these countries and elsewhere around the world. Of its 76 million members, who use the site to post résumés, hunt for jobs, and socialize with colleagues, more than half live outside the U.S. But LinkedIn, whose chairman, Reid Hoffman, has repeatedly talked about the likelihood of an eventual IPO, must prove it has a global business, not just a global user base. "My overseas contacts increasingly join LinkedIn to connect with me," says Josh Bernoff, an analyst at Forrester Research. "For LinkedIn to really capitalize on this sort of activity, they'll have to serve those international businesspeople in their own languages."

The company makes money primarily by selling ads and licensing its flagship product, LinkedIn Recruiter. That tool, which fetches a fee of about $7,000 per user, lets companies specify qualifications for a job they want to fill (bankers who speak Mandarin, for example) and receive lists of all the LinkedIn members who fit those parameters. Jeff Weiner, LinkedIn's chief executive, says international revenues account for slightly above 20 percent of LinkedIn's annual sales. Global Silicon Valley Partners, a financial planning and research firm, estimates 2010 revenues will reach $228 million and pegs LinkedIn's valuation at $1.87 billion. Internet companies such as Google (GOOG) and Amazon.com (AMZN) see more than half their revenues from abroad.

Now LinkedIn is trying to correct that imbalance and boost its overseas business. In the past eight months it has opened offices in Mumbai, Amsterdam, Dublin, and Toronto. It opened a London branch in early 2008. "We were the leading global professional network, but we weren't necessarily a global company, and those two things are different," says Weiner, who spent seven years at Yahoo! (YHOO) before becoming CEO of Linked-In at the end of 2008.

Motivating LinkedIn's global expansion may be a dash of Facebook envy—and perhaps a little fear. Facebook has gradually moved into LinkedIn's territory, with its older users often posting professional details and connecting with colleagues on the site, though analysts don't necessarily believe the two networks overlap. "As Facebook currently exists, it's not a very good business network and therefore is not a threat to LinkedIn," says Forrester's Bernoff. Weiner also points out that people want to "keep their personal life and professional life separate."

LinkedIn, like Twitter and Facebook, now prominently features an activity feed—a constantly updating list of job changes, information requests, and other revisions on the LinkedIn pages of a user's contacts. Later this year, members will be able to tailor their feeds to track status updates and job changes from everyone in a specific company or industry. "We want to make sure people see the full value of LinkedIn," Weiner says. "If they are not using it every day, we want them to feel like they are not doing their job."

For the first few years after its founding in 2003, LinkedIn mostly tried to boost its global presence by developing versions of its site in foreign languages, including, most recently, Italian and Portuguese. That increased membership in those countries, but never did much for revenues.

LinkedIn executives say the first international office, in London, was a test case to see if employees on the ground could increase sales of ads and its LinkedIn Recruiter service. Since the London office opened, membership in Europe has jumped from 5 million to 16 million, and the company inked ad deals in the region with Accenture (ACN), Philips, and Cisco Systems' (CSCO) WebEx division.

Arvind Rajan, LinkedIn's vice-president of international, says the company has since exported its London blueprint to other countries where membership growth is strong. That has required navigating around a few local professional networks in nations such as France, where a site called Viadeo is entrenched, and Germany, home of Xing.com. But executives note that LinkedIn is growing faster than either of those companies in their home countries, partly because users want to connect with other professionals around the world.

Rajan says he recently spent a week in Brazil to scout opportunity for a local office. Japan, he says, is another possibility, though white-collar workers there tend to stick with one company, and openly looking for jobs may be considered bad manners. The other expansion possibility for LinkedIn is China. However, LinkedIn execs have watched the misadventures of Google, which repeatedly tangled with the Chinese government and moved its search operations to Hong Kong in March. "We don't take entrance into China lightly, and it's only becoming more complicated every day given what happened last year," Rajan says.

The bottom line: LinkedIn, which is expected to go public over the next year, first needs to show it has a worldwide business.

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