Look for red flags
Published 9:00 pm Saturday, October 16, 2004
SAN FRANCISCO – Internet whiz kids Marc Andreessen, Josh Kopelman and Joe Kraus share something in common besides reaping huge jackpots during the dot-com boom.
All three belong to LinkedIn, a rapidly growing online networking service whose ability to connect people with common friends and work interests helped persuade the trio to invest in the company before it even started to generate revenue.
“It still has a way to go, but this should be a very profitable business,” predicted Kopelman, who sold his e-commerce site Half.com to eBay Inc. for about $250 million four years ago.
The enthusiasm for online networking has spawned significant investments in several variations on the same theme that operate under names including Friendster.com, Tribe.net, Spoke.com, Ryze.com, Hipster.com and DudeCheckThisOut.com.
The widening fascination with online networking has caused some analysts to wonder if unrealistic expectations are being raised (dot-com deja vu?) in an Internet niche that’s popular but still unprofitable.
“There is something good about all these networking sites, but the hard part is going to be turning them into real businesses,” said Forrester Research analyst Charlene Li.
In just 18 months, LinkedIn has built a faithful following with an invitation-driven service that encourages its members to share their rolodexes to help find jobs, fill jobs and increase sales.
In the biggest bet yet on LinkedIn, venture capital firm Greylock Partners on Wednesday announced a $10 million investment in the company. Sequoia Capital, one of the venture capital firms that helped launch online search engine leader Google, had previously led a group of investors that anted up $4.7 million to help launch LinkedIn last year.
The latest cash infusion should be enough to ensure the Mountain View-based company’s survival for at least another 18 months, said Reed Hoffman, LinkedIn’s chief executive.
Hoffman and LinkedIn co-founder Konstantin Guericke say they’re confident their 30-employee company will become profitable before 2006. How? By relying on a mixture of advertising and subscriptions sold to some of the site’s 1.2 million users.
They believe they can, while leaving the basic service open for free, charge “power users” such as executive recruiters, sales representatives and investment professionals who tap into the network frequently.
“There is a definite litmus test coming up, but we already know we have a number of users that are fanatical about the service,” said Hoffman, a former executive at online payment provider PayPal Inc., another online success story that was bought by eBay.
Kathleen Hayes of San Francisco is among those who might be willing to pay a membership fee to belong to LinkedIn.
She credits the service with leading her to her current job as a vice president at software maker BlueRoads. What’s more, she says, LinkedIn has contributed to the hiring of at least four other employees at the San Mateo-based company.
“It’s all about trust,” Hayes, 41, said. “The best way to get a meeting usually is through a friend, so this is definitely a viable service.”
LinkedIn also helped Robert Cerbone of Kensington, Md. find a management job at Nextel Communications but he isn’t sold on the concept. “It’s valuable, but it’s difficult to say if I would pay for it,” Cerbone, 33, said.
Kraus, who got rich off in the late 1990s merger that created the ill-fated ExciteAtHome, believes LinkedIn already has become an indispensable resource in certain professions such as employee recruitment, sales and venture capitalism.
“Any time there is a growing network that is providing high value to people, I have confidence there is money to be made,” said Kraus, who recently launched another start-up, JotSpot.
Most of the networking sites have grown without advertising, relying instead on existing members to invite friends and business colleagues to join their inner circles. Contacting someone outside a person’s own network typically requires an introduction through mutual connection.
Friendster, also based in Mountain View, has developed one of the most popular networking services so far, with an emphasis on socializing that has attracted more than 7 million members.
The company received a $13 million vote of confidence from a group that included another early Google backer, Kleiner Perkins Caufield &Byers, and recently recruited former NBC television executive Scott Sassa as its chief executive.
Associated Press
Kathleen Hayes credits the online networking company LinkedIn for landing her job as vice president of marketing at BlueRoads, a San Mateo, Calif.-based software company.
