I’ve been thinking quite a bit about Linkedin and the talent/recruitment market lately. Linkedin is on an absolute tear on all fronts. I’m a huge fan of its product and use it multiple times a day. Financially, the company beat Wall St. estimates on both top and bottom line last quarter, and its stock is up over 2x since it’s public debut 2 years ago. Linkedin’s rapid revenue growth is being driven by the fact that it’s an indispensable tool for recruiters and candidates alike. This has led to significant changes in the recruiting landscape over the last few years and will continue to do so.
To understand Linkedin’s current positioning and future opportunity set, it’s important to understand what the recruiting universe was like pre-Linkedin and what it’s like today. Before Linkedin, there were two major tools for corporate recruiters. One was job boards like Monster. The other was professional search firms like Korn/Ferry, Heidrick & Struggles, etc. More on this below.
A quick word on some terminology. In recruiting parlance, there are two classes of candidates. One are “active” candidates. These are people who are actively searching for employment, either looking to switch positions or they are unemployed. The other class of candidates are “passive” candidates. These are people who are gainfully employed and not actively looking to switch jobs. They may, however, be open to considering new opportunities. Most candidates for higher end jobs (i.e., professional, higher paying, top employers, etc.) end up being passive. Think of say a Director of Finance at a large company who’s happily employed, but is then approached by a hot new startup that convinces him/her that they have a great opportunity he/she should at least consider.
Job boards provide recruiters with two main products. The first is job postings. Companies typically pay a monthly fee to post a job on the board’s website. This is a pure listing fee, not a performance-based product. It’s also a “pull” or “outbound” product in the sense that it requires candidates to proactively apply for a position.
The other traditional job board offering is the resume book. Most boards allow candidates to submit their resume to their site for free. Some boards will charge candidates to include their resume in their database. Recruiters are then able to search this database for resume profiles that match their req. The recruiter then has to proactively reach out to the candidate to test the candidate’s interest in what they are offering. In this sense, it’s the opposite of a job posting. Recruiters typically receive some type of resume access along with the fees they pay for job postings, though it can be unbundled as a separate product as well.
The resume books that job boards provide have a few downsides. One is that many of the resumes are out-of-date. Someone submitted their resume 4 years ago, but they haven’t maintained a relationship with the site and the resume is now out of date. Also, outside of the really large players like a Dice.com, most job boards will have a fairly limited number of resumes, or in other words a small percent of the total available candidates in a given speciality.
On the other hand, resume books can be quite valuable to recruiters, even in the age of Linkedin. Recruiters can filter by resume submission date to ensure that the resumes they’re using are updated. And if someone submits their resume to a job board, that usually implicitly means they are an active candidate. This is valuable to the recruiter because the recruiter now knows that the candidate is actively looking for employment, more likely to return their call, etc. Also, recruiters really like the fact that resumes provide a candidate’s email address and/or phone number. This makes it much easier to reach out to a candidate rather than having to go through InMail, Linkedin’s messaging system. This is especially true given the high volume of InMail’s some high-demand passive candidates are receiving. More on some of the shortcomings of InMail in the next post in this series.
Finally, a word on job board marketing and user acquisition. A key challenge for any job board is attracting users. It’s the age old chicken-and-the-egg problem. Employers aren’t interested in your offering if you don’t have traffic or resumes, and candidates aren’t interested in your site if you don’t have job postings. How do you solve this? The classic answer most boards have followed is to focus on content, either job search related (e.g., “How to write a great resume”) or industry specific. Bring people in for the content and then monetize with your job offering.
- Applicant Tracking Systems (ATS) have allowed HR depts to much more efficiently allocate their recruiting spend. Without going into all the details on the ATS market, ATS’ are basically a piece of software that allows recruiters to manage their recruiting pipeline. Building a resume database, scheduling interviews, collecting feedback on candidates, posting jobs to your company website, and many other functions are provided by ATS’ from the likes of Jobvite, Taleo, The Resumator, etc. Any decent size organization will have an ATS and those that don’t are adopting them quickly. Most ATS’ have some basic analytics that allow HR depts to easily see what their best sources of referrals are – where do leads come from, which leads are highest quality, etc. People are reallocating spend based on these findings.
- Job boards aren’t dying, CareerBuilder and Monster are. CareerBuilder and Monster are the (once) giants of the job board space and they are really suffering from several concurrent trends. One is that the ATS analytics described above increasingly show that smaller, specialized job boards provide better results than generalist boards. Also, Linkedin is of course putting pressure on generalist boards since Linkedin is really the mother of all generalist job boards/resume books. Sites like CareerBuilder have become simply irrelevant to people in many higher-end professions. Finally, the rise of Indeed.com and SimplyHired have given recruiters a better way to reach the same audience as generalist job boards, but at a cheaper price.
- Indeed and SimplyHired have put enormous pressure on job boards, especially generalist boards. If you aren’t familiar with Indeed or SimplyHired, think of them as metasearch for jobs. They aggregate postings from thousands of individual job boards and layer a Google AdWords-like CPC model on top. If you’re a job board, you can pay Indeed for better placement in search results. Job seekers are typically taken to the site of the original posting, but Indeed has become such an important player (it reportedly did $150m in revenue last year) that increasingly recruiters are posting directly to Indeed. The CPC model and Indeed’s huge traffic volume is very powerful because now instead of paying a flat monthly fee to post your job on xyzjobboard.com, you can now post directly to Indeed and get access to the same audience of job seekers but at a much lower price.
- Specialized job boards seem to be doing OK. While the generalist boards are taking a beating, more niche players seem to be surviving. One proxy we can look at is Dice.com, the leading job board for mostly “mid tier” technology professionals. Dice did $155m in revenue in 2008 and $195m in 2012. They’ve done some acquisitions, but even stripping that out revenue and margins have held up well. Also, anecdotal conversations with recruiters reveals continuing interest in certain types of specialized boards.
These, in short, are headhunters. These are people-driven, services businesses akin to law firms, consulting firms, etc. Their business is segmented by vertical, geography, and search model. There are two main search models. One is retained search and the other is contingent search.
Retained search is when a professional recruiter is contracted by a company to fill a given opening. They get paid regardless of whether the position gets filled or not. Typical retained search fees would be ~30% of the target first year salary for a role. Retained search is the most sophisticated, most expensive form of executive search. It’s typically used for very senior and/or high profile roles – C suite, board of director, key hires, etc.
Contingent search is where a recruiter is contracted to fill a role on a success fee basis, typically 20-30% of the candidate’s first year comp. Contingent search is typically used for the next tier down of roles in a company from those covered by retained search. It’s also used for specialized roles like Tax professionals.
For the most part, the retained search business hasn’t changed much over the last decade. These firms suffered with the recession starting in 2008, but most of that downturn is related to a lessening of hiring at top levels than any major move away from retained search as a service. This is maybe the hardest segment of the job search market to disrupt. I don’t think Linkedin or other technologies can play well here, and I don’t expect them to try to.
Contingent search, on the other hand, is facing pressure as a business model. Headhunters’ historic advantage has been their proprietary networks and resume books. Pre-Linkedin, they had a real value proposition to offer. Imagine you’re a small business trying to hire a new Director of Engineering. Ten years ago, you had three options: (1) the job board; (2) your own network; (3) the headhunters network. In a world where contacts and relationships were much more proprietary, the contingent recruiter had a clear value proposition to the hiring company. With Linkedin, this has changed.
- I think certain types of job boards and professional search firms are here to stay. They will face increasing pressure from Linkedin and others and their share/size of the market will dwindle, but let’s not overstate things and call them “dead.”
- Linkedin isn’t the only new technology changing the recruiting landscape. The rise of the ATS, Indeed’s prominence, and other factors are all challenging established players and creating new opportunities.
- Recruiting is becoming more scientific and technology led rather than networking-led and service-oriented. That’s not to say that there’s no longer a human element, but rather that the field is being leveled. There are more tools available to allow recruiters to reach more candidates than ever before.
Linkedin has become the thousand pound gorilla in the recruiting space. If it isn’t already, it is rapidly becoming a must-have, indispensable tool for any recruiter, whether in-house or third party. Will explore why in the next post.