LinkedIn vs Facebook - Revenue model is the heart of your business plan

I am sure we all at some point wondered why is there so much buzz around Facebook's IPO and why is the company valued in billions! It was never clear if the 700 million Facebook users really clicked on the hundreds of sponsored links that appeared on right side of the page. In fact, most of our brains got easily trained to ignore those sponsored links. It was neither clear how the advertisers were measuring the benefits they received from these clicks. Are people really interested more in shopping the dress that appears on the link or are they interested to check the photos of their least favorite friend. Not exactly sure! Yet, Facebook went for its IPO in May 2012 with a lot of promises.

On the other hand, LinkedIn - the silent king of social network is extremely successful in turning the information it has into a cash machine. I recently read a Forbes article on how LinkedIn CEO Jeff Weiner soon realized advertisements on his website is not going to mint money for LinkedIn and he went back to the whiteboard to figure how best to monetize what he had. LinkedIn has a solid revenue model that has helped LinkedIn share leap 64% this year. LinkedIn has rightly focused on identifying that corporate talent scout is its target market because they not only want the individual profiles that LinkedIn has but more importantly, they will be willing to pay thousands of dollars for it.

Unlike Facebook which derives 85% of its revenue from advertisement, LinkedIn doesn't need the users to be on its website to make its money. On the lines of FB, silicon valley investors have been carried away with a lot of social and gaming companies such as Zynga, Groupon, etc. All these companies have been extremely good at creating a promising user community and creating the needed buzz to attract investors. However, these companies have taught lessons to the investors and budding entrepreneurs that how you make money is the heart of your business plan!

Where did Nokia go wrong?

Nokia as we know has been an incredible player and pioneer in the mobile industry for years. It is surprising to note that the company's R&D spend was 40 billion USD over the past 10 years compared to the innovators such as Apple and Google who spent less than 10billion USD over the same period. Nokia had the foresight of touchscreen, smart display, location-based services, mobile commerce and what not, several years before Apple rooted itself as the one and only God of smartphone services. However, why none of these wonderful Nokia products never reached the market? How did Apple take over the throne of mobile phone? How did Samsung who has been a laggard all these years take over the world market share of Nokia?

Firstly, Nokia failed to bring the market to product that they so greatly found in their R&D lab. The online resources (http://online.wsj.com/article/SB10001424052702304388004577531002591315494.html?mod=WSJ_Tech_LEFTTopNews) say it is the internal rivalry between businesses that caused this. However, being in product management, I can do an educated guess that Nokia probably had holes in its product management. For product companies, especially for a huge company such as Nokia, a corporate strategy and a vision is key in bringing the right products to the right market. I see this as the responsibility of the company's product in making the vision a reality, which Nokia seem to have clearly missed.

Secondly, Nokia has been a leader in the mass market especially in emerging countries. At the time when Apple introduced iPhone in the US, Nokia was a monarch in countries such as China, India and few pockets in Europe. Most of these markets wouldn't pay a fortune for smartphones. However, if Nokia had to make it big in smartphone, they should have considered targeting niche segments just like Apple did in 2007 when it introduced its first iPhone. Nokia's mistake was that it was trying to sell a 500 USD phone in the same way that it was selling 30USD phones. A well-known way of how successful companies handle this strategy well is creating a new brand name for luxury and expensive products example Lexus of Toyota, Acura of Honda, Infinity of Nissan etc. It is not surprising the company lost its focus on both the mass and the niche markets and lost its throne to Samsung.(I am planning on writing another blog on how great Samsung is).

Thirdly, Lumia could have been a better product. Though for years Nokia had been making great product, it lost its last and final chance of "making" it. There had been several glitches reported on Nokia right from basis SMS function to form factor, music, camera etc which as are bare minimal qualities for a smartphone these days. It is not exactly clear however if it is entirely Nokia's hardware or if Microsoft's Windows Phone has got to do with the poor performance of Lumia.

But I do feel bad for Nokia because it has been a pioneer and a constant innovator for so many year. Not sure if there is any ray of hope left for Nokia. Moral of the story here is - it is not sufficient to be just an innovator in one's own lab, but go-to-market strategy i.e bringing products to market is equaly or more important that just the innovation itself!