LinkedIn’s IPO – Wall Street Loves the Subscription Economy

By Tien Tzuo May 19, 2011

by Tien Tzuo

 

The tech IPO market is back, and more and more Wall Street is favoring the Subscription Economy business models. Two of the best performing stocks in the last few years are salesforce.com (CRM) which innovated the SaaS model and Netflix (NFLX) which revolutionized the at-home entertainment market. Netflix went public at $15/share. Today? $242!

 

Today, LinkedIn went public with the biggest initial offering ever for a Subscription Economy player and began trading at $83 per share, topping a near $8 billion market cap. LinkedIn shares have skyrocketed, trading at about $107 a share, and at a high of $122.70 a share, as of 9:30 AM PT today.

 

To many, LinkedIn is where you go to create a free profile so that you can network with business contacts, search for jobs, recruit employees and find industry experts. The turning point in its business though was in 2005 when LinkedIn shifted to a subscription model that allowed it to monetize its social network.

 

LinkedIn introduced paid subscriptions to give recruiters more access to job candidates and members additional ways to communicate with one another. Then the company ramped up its subscription ad model as membership reached over 100 million worldwide. Last year, LinkedIn reported $243 million of sales.

 

And while social networking is clearly red hot, LinkedIn’s subscription model enabled it to do two important things: build a scalable, renewals-based business and focus on member loyalty. LinkedIn recognized that one-time, single-interaction sales models were obsolete for its business.

 

So don’t go start a Subscription Economy business because you want to have a huge IPO or or to please your current investors. Do it because you want to change the way that you engage with your customers, enable you to provide more value and participate in the greatest shift in consumer spending in the last 30 years. And if you have a multi-billion IPO, I’ll be there to invest.