First, the quote from the The New Yorker:
For the first two years, Hoffman concentrated on growth, so LinkedIn had no revenues. (Today, most of LinkedIn’s $2.2 billion in annual income is from fees paid by recruiters for access to extra information about the site’s users.)I can give some insight into the source of this revenue. Part of it comes from premium memberships, for LinkedIn recruiters to access data about promising prospects. But there is another component to this revenue, which doesn't reflect the interest of "recruiters" but rather companies who want to list jobs on LinkedIn. The LinkedIn job ads cost a lot.
How much do LinkedIn job ads cost?To list a job on LinkedIn, companies pay through the nose. For one of my consulting clients I created its first LinkedIn recruiting campaign. The company was paying something like $325 for a single job listing for one month (purchased in a batches of 10 ads). Multiply that by millions and you get the idea of where LinkedIn’s billions are coming from!
Keep in mind that this basically means matching recruiters/corporate types with the right candidates and charging a hefty fee to do so. Why do LinkedIn job ads cost so much? Mainly, because it's effective and the competition is terrible. It works because most of the alternatives — ads in the paper, Craigslist, online sites like Indeed or Monster, etc. don’t have the reach or the algorithmic smarts to generate results that are as good.
LinkedIn has been able to achieve scale by providing a great place to post online resumes and connect with current/former colleagues, and then building a whole bunch of extra services on top of that - company profiles, job search engines, premium services, etc. I imagine they also increase the value of that data by building (or buying) profiles of the millions of companies associated with LinkedIn members, and then assigning value to them based on various criteria (age of company, number of employees, market value, hiring/turnover trends, etc.) It's very powerful, and it will be very difficult for other companies to catch up with LinkedIn in terms of quality or revenue generated.