Both LinkedIn and Xing are business focussed. So this is not a hipsters vs suits contest. This is a Europe vs America contest, with Asia as the disputed territory.
Xing is interesting because it is a public company. They went public in December 2006 in Germany, raising $55m (at current exchange rates). So their financial data is out in the open for all to see, on their site. As the first Web 2.0 company to go public, this makes Xing very interesting to look at.
Xing’s public currency matters, as it will cost a lot of money to win in Asia - where the growth is and where neither LinkedIn nor Xing are strong today. Markets such as China, Japan and Korea are big but also notoriously tough to crack, requiring persistence and deep pockets as well as smarts.
I spoke to Lars Hinrichs, CEO of Xing, last week and I asked him if the company planned a US listing; his answer was a clear no. He is confident that Xing can raise all the capital they need in Europe - and Sarbanes Oxley regulation was a disincentive. Those two Senators have sure done a lot of good for European and Asian companies, by weakening the US IPO market and therefore the capital raising capability of US companies.
The fact that Xing is a “public market comparable” puts some boundaries around LinkedIn’s valuation. If LinkedIn did an IPO, Xing’s comparables would be pored over by Wall Street analysts. If a big public or private company were to acquire LinkedIn, these same comparables would be used.
I do not have access to LinkedIn financials, so I cannot make a serious estimate of LinkedIn’s value. What we do have are some published numbers on users. On that basis, LinkedIn looks like 4x bigger at 20m vs Xing at 5m. Xing’s market cap today is round $300m, so that would make LinkedIn quite happy at 4 x $300m = $1,200m.
But dig a bit deeper, as investors certainly would, and the numbers are not so clearly in LinkedIn’s favor. How well are both sites monetizing their users? This is where Xing’s early capital constrained history matters. The company was profitable within a few months of starting, a very old-fashioned idea.
Xing provided ReadWriteWeb with some data from Comscore:
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LinkedIn looks ahead on Total Unique Visitors by a factor of 2.6x. That is a big gap but not unbridgeable and smaller than the 4x headline based on LinkedIn 20m vs Xing 5m users.
But what really jumps out from this data is the much higher engagement of Xing users on all the key measures. On Average Minutes per Visitor Xing at 43.4 is 5.5x LinkedIn’s 7.8.
Engagement matters as it translates to revenue, as long as the company is reasonably smart about monetization. Xing, with their bootstrapped early days, has been unfashionably focussed on revenue. Xing recently released their financials for year ending December 2007. There is a lot of interesting data there for anybody interested in the business of business networking. At around $30m, Xing revenues are still small but on a high growth path - 2x 2006 revenues. Plus their 35% EBITDA margin shows maturity. This is already a cash cow.
The combination of cash cow, about $60m in the bank and a public equity currency gives Xing a sizable war chest. They will need that to win in Asia, as discussed above.
They will also need it to win in America (and other English speaking territories such as UK, Australia and India) and that is where Xing needs to be smart. LinkedIn clearly dominate these markets and English is the global language of business (after my feeble attempts to resurrect my childhood German, Lars Hinrichs was happy to speak in English!). I registered for Xing out of curiosity, it all looks quite good but there is no way I will upload my email addresses and ask all my contacts (80% of whom I already connect to on LinkedIn) to also connect to me on Xing. My contacts would rightly accuse me of spamming them.
Note: the same is almost certainly true when LinkedIn tries getting Xing users in Europe to switch. These businesses are valuable because there are high switching costs.
This is where Xing’s relationship with ZoomInfo is interesting. This could be their back door into the US market. ZoomInfo was an early Web 2.0 success story. I recall when they first came out how quickly they shot up the organic search listings on people searches. They became good enough to break the Google habit; I would often go to ZoomInfo first.
LinkedIn took the wind out of ZoomInfo’s sails. The LinkedIn data is often more accurate and up to date, as users are motivated to update it. ZoomInfo data was based on scraping publicly available data. (I don’t use “scraping” in a pejorative sense, it is a valuable tool and ZoomInfo do it better than most and add some semantic smarts).
On the plus side, ZoomInfo does not require anybody to update their profile. So they get a lot of profiles of people who are not on LinkedIn, the real late adopter majority. In business these are often the baby boomers with bi-focals in the corner office who sign off on the big deals. Valuable people in other words.
To counter-attack, ZoomInfo is moving away from the destination site model to an API driven model. They did this using Mashery. So far they only have two applications listed on their site and guess what, one of them is Xing.
LinkedIn also announced their API, right after Facebook announced their API. However in the US market, where they rule, they face a bit of an Innovator’s Dilemma. Personally I would like news from my network to filter up to some RSS aggregation tool, the rapidly evolving range of information overload coping tools that Marshall writes about. Most busy executives need another destination site to visit as much as (insert favorite dislike here). But LinkedIn makes money on page views. They want apps that encourage me to come to their site more often, not apps that make it easy for me to consume their data wherever I am.
Xing, on the other hand, does not need to play defense in the US market (different story in Germany), so they could, together with ZoomInfo and maybe a big email provider, do a nice end run with an API driven strategy.
This, I must emphasize, is purely my speculation and is not any official Xing strategy as far as I know.
Loic Le Meur, a Frenchman who moved to Silicon Valley, sparked a big debate by telling the world that you need to move to the Valley to go global. I agree with most of what he says - “think global from day one” is my summary - but his conclusion that you have to move to the Valley to do this is increasingly flawed and Xing illustrates why. Why move to the Valley? The same reason Willy Sutton robbed banks - it's where the money is. And, yes, talent flocks to money and the combo of talent and money continues to make the Valley the uber-hub. But follow the money. What happens if the US IPO market remains closed to innovative start-ups? Does the entrepreneur in London move to the Valley for her Series A and B and then return to London for the AIM listing?