Despite receiving and additional £14.3 M in VC funding last month LinkedIn has announced is will be axing 36 roles, 10% of its workforce. A move which could be an indication the social networking site for business people has hit troubled times.
There’s always a quetions mark with social networking sites and social media solutions on the whole about how their revenues model is going to work, is it a straight CPM advertising model? do you charge for membership? Or do you use some sort of combination of the two? LinkedIn seem to have a good balance for me, with display advertising shown throughout the site (the attraction to advertisers being the ability to target business types) and then supplementary services such as a job board which charges for listing vacancies. It may be that LinkedIn is just not growing as expected and so cutbacks are necessary to hit profit targets, or it could be something more severe.
The original dot com crash was caused by people investing large amounts in projects without a solid revenue model and there has been instances which are reminiscent of this recently surrounding social media (think Microsoft’s $240 M payment for 1.6% stake in facebook). Given the current economic climate I cant see many investments of this size in the coming months and I would hazard a guess that a few people are regretting previous investments a little, but whether we are set for dot com crash 2.0 only time will tell.