Chapter 5

LinkedIn

A Résumé for Success?

On July 31, 2019, Chitu officially died. After four years, LinkedIn shut down Chitu, its China-only app. The app was named after a war horse in a Chinese historical novel, Romance of the Three Kingdoms. The horse was capable of running 1,000 miles in a day and climbing mountains as though galloping across flat land.

But in choosing the app’s namesake, LinkedIn seemed to have forgotten the end of Chitu’s story: The horse dies.

Every one of the leading tech companies has had flops, from Facebook’s Paper to Amazon’s Spark and Google’s Google+. But Chitu was different—not just a failed product but more a shattered dream. Before Chitu, plenty of Western internet firms had struggled and failed in China. That forced LinkedIn to think differently as it designed Chitu. Derek Shen, then LinkedIn’s China head, envisioned a networking site so appealing to young Chinese professionals that it would eventually lead to a public stock offering for LinkedIn China.¹

A New Model

Reid Hoffman, cofounder and chairman of LinkedIn, long had an interest in China. According to a current LinkedIn executive who was involved in the China expansion,² the company’s designs on China started in 2012, and Hoffman conducted extensive research about the Chinese market. This executive spoke on the condition of anonymity. At the time, China’s dominant social platform was Weibo, which resembles Twitter. WeChat, the now ubiquitous multipurpose app, had just recently been released, and its main function was messaging. The idea of a Chinese version of LinkedIn initially met with skepticism. But Hoffman and his executives were accustomed to that kind of reaction—nearly every time LinkedIn had expanded to a new country, they’d been told that what had worked in the United States wouldn’t work locally. Every time, the naysayers had been wrong.

Hoffman and his executive team believed Chinese professionals would respond similarly. Though LinkedIn didn’t have a China-specific online offering, it had already amassed a few million Chinese users, solid evidence of potential. So LinkedIn liked its odds when it officially arrived in China on January 1, 2014.

Back then, an internet company entering China had to have a local partner. LinkedIn had two options: a tech firm or a financial backer. Pairing with Chinese tech companies, like Baidu, Alibaba, or Tencent, had an obvious appeal. That would give LinkedIn rich industry distribution. But the downside was equally obvious: once the local firm learned your business—and your users—it could “cut you off,” said the current LinkedIn executive. A financial partner, in contrast, could help navigate the Chinese business and regulatory environments but wouldn’t take too much control. LinkedIn opted for the latter, giving up a small part of its local operation to two well-known Chinese venture capital firms: Sequoia China and China Broadband Capital. Sequoia China is run by Neil Shen, who had frequently appeared atop Forbes magazine’s Midas List and invested in almost half of China’s internet companies. China Broadband Capital was founded by Edward Tian, who set up China’s first internet company, Asiainfo, in 1993 and then headed China Netcom, a state-owned telecommunications company. Both men brought connections. It didn’t take LinkedIn too long to obtain an internet content provider license, a prerequisite for operating in China; that had taken Google a few years. LinkedIn also landed its China president, Derek Shen, through Neil Shen’s network. (The two Shens are not related.) In an interview with Bloomberg TV, LinkedIn’s CEO, Jeff Weiner, lavished praise on Derek in front of an audience of millions: “Our China president … is an entrepreneur at heart, an engineer by training.”³

Derek had grown up in China and been educated in the United States. After earning a master’s in computer science from the University of California at Los Angeles, he worked for Verizon, Yahoo, and Google. He then built Nuomi, a Chinese start-up later acquired by Baidu, China’s leading internet search company. He was one of the few candidates who met LinkedIn’s criteria: He had a tech background and corporate and start-up experience and understood both China and the United States.

Weiner had promised him autonomy to entice him to take the job. He even changed LinkedIn’s structure to have Shen report directly to him. “Historically some companies stumbled or experienced challenges, and in part that’s coming from having your head of China report to head of international, who may or may not report to the CEO,” said Weiner.⁴ Weiner also announced that LinkedIn China would do its own development, meaning the China product would be adapted to local conditions beyond just language. That level of localization was an exception for LinkedIn. LinkedIn China had its own board, consisting of five members: Hoffman, Weiner, Neil Shen, Tian, and Derek Shen. The China team was offered stock options, a reward system similar to that of other start-ups in China. The idea was to run LinkedIn China as a start-up so that it could better compete in the hurly-burly of the Chinese market. In LinkedIn’s view, China was too competitive for edicts from far away—too many constraints from headquarters would hasten failure. Plus, flexibility would enable the local team to find its own way.

Blending into the Chinese Internet Ecosystem

The original LinkedIn had started out in 2002 relying on email for user acquisition. Email, of course, was a key business tool in the United States. In the early days, Hoffman personally emailed his contacts in and around Silicon Valley, inviting them to join his newly created venture. Search engine optimization also helped. In the United States, when you search online for someone’s name, that person’s LinkedIn profile often pops up. Yet neither of those approaches seemed suited for China. Email had never dominated there in the way it has in the United States. Chinese people often opted for phone calls or WeChat as their main means of communication, and Baidu, the Chinese-language search engine, was unlikely to return a LinkedIn profile.

The LinkedIn China team accepted these realities. They struck a deal with WeChat, linking WeChat to LinkedIn accounts. When Hoffman had visited China in 2012, WeChat, owned by Tencent, had just launched. Two years later, it replaced Weibo as China’s favorite social app, hosting around 400 million monthly users. In addition to messaging, people used it for video calls, status updates, mobile payments, and ride hailing. It was the backbone of China’s social internet.

Yet WeChat wasn’t a natural partner for a professional networking site. Its user profiles were scanty, even fictional. A user name wasn’t necessarily that person’s real name, and a profile picture typically bore little resemblance to the actual person behind the smartphone or keyboard. It could be a dog or cat or anything else. One user called himself “Franklin” and put a picture of the US Founding Father Benjamin Franklin next to his name. So LinkedIn did bring a benefit to WeChat: It provided detailed user information, which had value in the business context. “Many users found us through WeChat,” said Linus Chung, former head of corporate development at LinkedIn China.⁵ The partnership significantly boosted LinkedIn’s exposure in China.

Another LinkedIn enticement was its relationship with Sesame Credit, a credit-scoring system developed by an affiliate of Alibaba and embedded in its popular payment tool, Alipay. Sesame Credit offered perks to people with good credit, such as easier access to loans, waivers on rental deposits, and a simplified visa application for overseas travel. Credit scores were calculated based on several factors, including transactions on Alibaba’s sites, social media interactions, and payment history via Alipay. LinkedIn became one of the variables—people with LinkedIn profiles would be awarded higher scores, another reason to sign up.

The relationships with WeChat and Sesame Credit worked so well that Mark Feng, former product lead at LinkedIn China, even devised a new definition of localization: “adjusting your product structure to make it compatible to that of Chinese tech giants, who shaped the internet landscape and user behavior.”⁶ Feng was recruited in California and sent to Beijing, where he and his team localized LinkedIn to cater to Chinese users’ preferences. They added new features, such as the ability to find people nearby and Chinese news recommendations. But none of these brought returns as great as the integrations with WeChat and Sesame Credit.

Another way in which LinkedIn China departed from the parent company’s orthodoxy was its willingness to operate off-line, using ads and events to increase awareness and adoption, a method widely used by Chinese internet companies. LinkedIn did an ad campaign in Beijing’s and Shanghai’s teeming subway stations; Beijing and Shanghai have the busiest subway systems in the world, each with more than 9 million riders a day. In the ads, Reid Hoffman and three Chinese celebrity endorsers—Olympic gymnast Ning Li, English teacher turned investor Xiaoping Xu, and pop singer Haiquan Hu—invited Chinese commuters to go on LinkedIn. The significance of Hoffman’s embrace of traditional advertising wasn’t lost on Derek Shen. He recalled proposing ad campaigns to Google, his previous employer, and being rejected by headquarters executives who found the idea bizarre: “Why would an internet company run off-line ads?” But LinkedIn, as he’d been promised, was willing to adapt to what the local market demanded and what the local team judged prudent. “We got a simple answer: You decide!” said Derek Shen.⁷

LinkedIn also organized hundreds of meetups, inviting Chinese professionals to meet with high-profile career “mentors,” including Hoffman, Neil Shen, PayPal cofounder Peter Thiel, and Kaifu Lee, an investor and former president of Google China. Those efforts paid off, as user numbers climbed. They jumped from 4 million in the beginning of 2014 to 9 million by the middle of 2015.

“Constraints” from Headquarters

Despite the progress, Derek Shen, even with his autonomy, found himself constrained. He wanted to tweak LinkedIn’s registration to make it more China-centric. China is a mobile-first market—people access the internet via their mobile phones more so than in any other country, and when they register for a new app, they’re often asked for a cell phone number. Yet LinkedIn’s app was based on email. The company assumed everyone had an email account. But in China, email users accounted for only about one-third of total internet users. But adding a mobile registration had to be done by engineers in California, on LinkedIn’s global platform, where a minor change would impact all regions where LinkedIn operated. “Any product modification for the Chinese market on our global platform was extremely difficult and slow,” said Robin Zhang,⁸ the former chief of staff to LinkedIn China’s president. As a result, over a year after LinkedIn entered China, registration via cell phone was still not available. That bothered Derek Shen. He complained to Neil Shen that this kind of change would’ve taken a Chinese start-up a couple of weeks.⁹

The same sort of frustration arose with the integration with Alipay. Again, the headquarters had to be involved, and LinkedIn China had to wait its turn unless the request was escalated to a special case or Derek Shen found an advocate at the headquarters who believed in the project. Local autonomy meant freedom to fast-track whatever the team wanted in China, but at a corporation with LinkedIn’s size, you still needed relationships in the home office when you wanted something done there. Weiner had promised that when the China team needed the help of functional areas not located in China, he’d impart the needed sense of urgency. In reality, the message didn’t always get through. “All those fundamental things sound great on PowerPoint slides when you educate executives in the US about China, and everybody sort of nods his head,” said Chung. “But when you get to how you operate on the daily basis, it’s really difficult.”

And that wasn’t the only disagreement with headquarters. Silicon Valley companies have long held they need not pay for growth because a good product sells itself. Chinese tech companies, in contrast, tend to spend a lot for product adoption. Advertising and other off-line promotions are common. As a result, though the initial ad campaign was approved by headquarters, the China team was rebuffed when it wanted to double down. “An American executive, who’s used to ROI and believes that our product should be good enough to have people come flocking, wouldn’t be convinced,” Chung said. He believed both the home office’s bias about not paying for growth and the local team’s failure to build a convincing case contributed to the impasse. “Our cases were usually based on what everybody else did, not why we needed to do it. And we had a limited budget and short leash with the headquarters.”

Executives in California grew disenchanted with the meetups too. They started to question their value, in particular Hoffman’s participation. The events seemed to result in improvement only in vanity metrics: The number of attendees didn’t equate to the same number of new LinkedIn users. Attendees were drawn to the well-known speakers but not to LinkedIn. Chung faulted the execution. “Some events didn’t even require attendees to sign up on LinkedIn. Instead they were asked to register with their cell phones or just follow LinkedIn on WeChat,” he said.

The Birth of Chitu

In March 2015, Derek Shen flew to California and made a bold proposal: He wanted to launch a separate professional networking app.¹⁰ Weiner’s first reaction, according to Shen, was: “Are you crazy?” Shen had anticipated that and had come with answers. LinkedIn, he pointed out, was born in the PC era, and its email-centered design didn’t fit the mobile-first Chinese market. The LinkedIn brand likewise appealed only to the few Chinese who spoke English and had overseas experience or worked at multinationals. What’s more, integrating with the standardized global product had prevented LinkedIn China from operating like a local start-up—something the China board, which of course included Weiner and Hoffman, had wanted from the beginning.

Shen’s proposal also drew on the classic example of QQ and WeChat. When Tencent spotted the shift from PC to the mobile internet, it didn’t convert QQ, its web-based messaging service, into a mobile app. It started from scratch. That was how WeChat came to life.

Weiner eventually agreed. Shen recalled him saying, “I see the risks of doing this, but I also see the risks of not doing this.”¹¹ According to the current LinkedIn executive, this decision was based on the original thesis: the idea of fully empowering the local team.

Shen was delighted; he finally got the autonomy he’d been promised. He and his China team were given complete control over the new product’s development and operation, without intervention from headquarters. Shen had his own theory of how a multinational firm could succeed in China. He believed it had to meet three criteria. It had to be led by an entrepreneur, not a corporate executive. It had to have autonomy. And its product or service had to be tailored to China and not just be a modification of a standardized global product. With Weiner’s decision, he’d checked all three boxes.

He immediately hired an engineering team for the app, and its members worked tirelessly, including staying at a hotel for a month without weekends off. Three months later, in June 2015, the new app was launched. It was of course named Chitu, and the hope was that it would be speedily adopted by non-English-speaking young professionals. LinkedIn, meanwhile, would remain the high-end brand in China, targeting more mature users with international backgrounds.

Chitu Falters

Chitu solved the long-standing mobile registration problem, and it included QR-code scanning for adding new connections. Other new features were “knowledge sharing,” where an array of industry experts talked about career-related topics via voice broadcasting, and announcements of off-line events. Beyond that, there was not much difference between Chitu and LinkedIn. Even the China team sensed that.

“We just realized that Chitu bore too many resemblances to LinkedIn,” said Zhang. “The longer we ran Chitu, the more we felt that way.”

Chitu and LinkedIn didn’t turn out to complement each other in the way that WeChat and QQ had. WeChat had enough differentiated features to drive QQ users to WeChat, and people ended up using both products. But Chitu users and LinkedIn users were separate groups, with almost no overlap. That was an irony for a social networking company: The app created a divide, not a connection.

In addition, with Chitu divorced from LinkedIn’s global platform, it lost its parent’s strengths. By the time LinkedIn entered China, there were about a dozen companies targeting professional online networking. Among them were Tianji, the Chinese branch of a French network, Viadeo; Ushi, a creation of Canadian entrepreneur Dominic Penaloza; and such Chinese firms as Maimai, Dajie, Renhe, Weaklink, and Jingwei. What had set LinkedIn apart was its global network, something no one else had. Yet Chitu, by cutting ties with its parent, lost that.

But the implacable competitor Chitu faced wasn’t any of the professional networking competitors. It was WeChat. Unlike in the West, where people post to Facebook for family and friends and LinkedIn for work, the Chinese don’t separate their personal and professional networks. Everything’s posted on WeChat. You can see pictures from someone’s family vacation in Tokyo on Tuesday and her shots of a customer event in Shanghai on Friday. Though WeChat began as an offshoot of a social network, it had broadened into an “omni app,” providing all sorts of useful functions, such as free video/audio calls, file transferring, and group chat. As a result, many professionals had come to depend on it in their jobs. In business settings, it had become common in China to just add each other’s WeChat information instead of exchanging business cards. Once people were connected on WeChat, there was little reason for them to move to another platform.

One feature WeChat lacked but Chitu had was a pool of professional profiles, which let Chitu users search for various skills, characteristics, and affiliations. But that sort of functionality appealed less to professionals than to headhunters. Chitu also touted expanding one’s network and looking for opportunities via “weak ties.” But that idea sounded foreign in China; it’s not how the Chinese interact. China remains a society where people meet—and build guanxi—mainly through acquaintances. Online professional networking is a hard sell in such a place.

The Chitu team sensed that. So they decided to bet on knowledge sharing, hoping this would set Chitu apart. “We had run 1,000 sessions of knowledge sharing within one year,” said Zhang. They even changed Chitu’s slogan from “the app that understands China’s professional networking the most” to “the app that shares deep and interesting career knowledge.” That didn’t work either.

Chitu was not alone in its struggles. Both Viadeo and Ushi exited China in 2015, even though Viadeo had accumulated 15 million users. Other platforms had repositioned themselves toward job searches. An exception was Maimai. Launched in 2013, it offered similar services to the others but gained traction through its anonymous chat feature, where users shared industry and office gossip under pseudonyms. Corruption allegations against Ofo, China’s once-hot bike-sharing start-up, first broke on Maimai. That generated national headlines, which brought in many new users. Maimai secured $200 million in a round of financing in 2018 and announced plans to go public in 2019. During its fund-raising period, Chinese authorities asked Maimai to close its anonymous posting section, out of concern that it spread false rumors, violated privacy, and raised other legal issues. Maimai complied. It was still growing, yet throughout 2019 there was no news on its initial public offering (IPO). Rumors circulated that it had lost its appeal as a result of removing anonymous chatting. “Would Maimai be a big player like LinkedIn in the US? I don’t know,” said Neil Shen. “LinkedIn is a very successful model in the US. But if you look at China, that model never worked.”¹²

Chitu or LinkedIn?

Chitu’s external struggles were mirrored by conflicts within LinkedIn China. Since Chitu’s launch in 2015, the China team had given it priority and let LinkedIn languish. When the idea of starting a new app was broached, some of the team members had raised concerns about whether it was practical to run two products simultaneously. They were being proved right.

“As soon as we got that engineering team signed off and the new product was running, people just started ignoring LinkedIn,” Chung said. According to Chung, resources assigned to LinkedIn were diverted to Chitu. For instance, after Sesame Credit drove growth for LinkedIn, the team started pushing a partnership with Chitu. “That was equivalent of starving potential growth for your global network.”

Without continued attention and investment, LinkedIn lost whatever appeal it had. It was still attracting new users, but their engagement rate remained low. Many Chinese professionals would create a profile and never return. A former LinkedIn marketing employee told the New York Times that LinkedIn’s Australia network had far few users but was much more active.¹³

Seeing the slippage, executives in California ended their hands-off policy. They sent staffers to China to investigate. In June 2017, after two years of running Chitu, Derek Shen stepped down. In his farewell letter, posted on LinkedIn,¹⁴ he said: “It is difficult for multinational internet companies to operate in China. It’s even more difficult to build a new business model within a well-established multinational firm. But we fulfilled our mission.” He summarized LinkedIn China’s achievement thusly: 32 million users and tens of millions dollars in revenue. He didn’t mention Chitu.

After his departure, the company started to scale back from Chitu and refocus on LinkedIn. For the next 10 months, an interim president oversaw the operation, until Jian Lu was hired to take over. Like Derek Shen, Lu also had a tech background, experience in both big corporations and start-ups, and ties to both China and the United States. Despite those similarities, Lu’s line of reporting looked much different. The privilege of reporting directly to the global CEO Weiner was gone. Lu answered to the global head of engineering. In May 2019, Lu announced a new strategy for LinkedIn China, shifting its focus from professional networking to career development. The site would now stress its career guides, salary insights, and workplace Q&As. Two months later, Chitu went off-line.

Apart from the failed Chitu experiment, LinkedIn is still held up as a model of how a multinational can succeed in China. For LinkedIn, success meant—and continues to mean—fulfilling its mission by connecting 140 million Chinese professionals with each other and with the rest of LinkedIn’s worldwide network of nearly 700 million people. That’s why it’s still there. What it hasn’t done is to establish itself as a dominant site. “Nobody expects to make money any time soon in China,” said the current LinkedIn executive. “We managed to beat everyone by still being there.”

Applying the Framework

The LinkedIn story isn’t done. While we admire LinkedIn’s continued commitment, its initial expectations clearly were not realized. Here are some of the key explanatory factors:

• Demand for online professional networking in China is not yet evident. Many have tried and failed to be the “LinkedIn of China.” If the job to be done is to enable and encourage online professional networking, as in other markets, then demand has not yet emerged in the Chinese market. However, if the job to be done is to allow professionals to realize their career goals, then a lot of demand exists. From the outset, LinkedIn had reason to believe that the job it performed in the rest of the world existed in China. Hoffman and other members of the executive team had often heard the refrain “it doesn’t work that way here,” and they’d shown that again and again to be wrong. In many other global markets, preferences for LinkedIn developed as its benefits became clear. As coauthors we still regularly debate the question of whether demand for online professional networking will develop in China, but to date this uncertainty has not been resolved.
• In its home country, LinkedIn’s alpha assets include brand, product, scale, and its massive network. Yet in China, most of those were not alpha assets. Most Chinese professionals had never heard of the brand, and the product resembled competitors’ offerings. Upon its entry, LinkedIn did have 4 million users in China, but that was a tiny fraction of the country’s 140 million professionals. LinkedIn’s only real remaining advantage was its global network, which none of its competitors possessed. Once a Chinese professional joined, that person had access to professionals from around the world. Some may argue that a global network would appeal only to Chinese who wanted to connect to people outside China. But what if a group of Chinese who didn’t have an interest in a global network wanted to connect with those Chinese who did? And what if more people followed this lead? The network effect could be powerful, though the question is how to leverage it to LinkedIn’s benefit in a country where culture and preferences impact the way people interact with each other on an online platform. This remains today a credible thesis for how LinkedIn could still thrive in China.
• LinkedIn’s local team was led by a US-educated Chinese entrepreneur with Western corporate experience; he seemed ideal for the job. Yet he wasn’t able to secure the resources and support his unit needed, despite endorsements from both Hoffman and Weiner. He ended up, in effect, cutting ties with the parent and starting a new platform. That reduced interference from headquarters and provided autonomy but ended up looking like a mistake when the app wasn’t widely adopted. The LinkedIn China experience highlights the central tension of autonomy. A China unit must be granted the agility to compete in China. But if it doesn’t leverage its parent’s assets, it has no particular advantage, relative to aggressive local rivals.
• LinkedIn’s strategy quickly shifted to complete localization by building Chitu. That only put it in the same position as its competitors, especially when facing WeChat, China’s dominant social media tool, widely used for both business and personal life. Without its central alpha asset, LinkedIn had no strength to play. In retrospect, the strategy of a separate product was probably a key misstep.
• To borrow a marketing phrase, LinkedIn struggled to find “product-market” fit. The company’s worldwide positioning as a professional networking platform didn’t work well in China (though it may still). Chitu represented a repudiation of that approach. Even today, LinkedIn has only partially realized product-market fit. Mind you, the same could be said about competitors. The winning approach to professional networking in China remains to be seen.

These elements and other factors in the framework are noted in Table 5.1, along with our subjective assessment of the decisive factors.

Table 5.1: Summary of Success Factors for LinkedIn

Factor		Explanation
Demand		Demand for online professional networking not yet proved.
Access to market		To avoid repeating mistakes made by other foreign companies, LinkedIn developed a new operational model by forming a joint venture with Chinese venture capital firms. In doing so, it acquired the legal and regulatory expertise it needed while avoiding the peril of partnering with a future rival.
Advantage		Brand and customer network are clear alpha assets in most of LinkedIn’s markets. Brand offered no significant advantage in China, and LinkedIn’s strategy did not focus on the value of its global customer network.
Commitment	▲	LinkedIn demonstrated a strong commitment to China, born of Hoffman’s vision and the company’s values. The company said it didn’t expect immediate return. Its commitment stemmed from its mission of connecting the world’s professionals, including those in China.
Governance		The company’s governance structure granted a lot of autonomy to the China unit. Recall Derek Shen’s direct reporting line to the global CEO and the stock options granted to the China team.
Leadership		Derek Shen enjoyed support from company leadership but was unable to marshal resources from headquarters at an operational level. He was suited to lead an autonomous effort to build Chitu, but that goal was probably misguided.
Strategy		LinkedIn’s strategy was to build a completely local product, Chitu. In retrospect, this strategy failed to exploit LinkedIn’s alpha assets and gave it no particular advantage over more nimble start-ups.
Product		LinkedIn and all of its competitors have yet to find product-market fit.
Agility		Initial governance structure was designed to accelerate decision-making and let LinkedIn China run like a start-up. Now, LinkedIn China operates more like the branch of a multinational, and thus it appears to have lost some of its agility.
Luck		No particularly decisive positive or negative exogenous events.
Note: Upward-pointing triangles indicate a positive factor. Downward-pointing triangles indicate a negative factor. The number of triangles is our subjective assessment of the relative importance of the factor. We omit indicators for those factors that we do not believe were significant for this case.

LinkedIn completes our four cases of companies that either exited China or didn’t meet their expectations there. Starting with the next chapter, we’ll see how another four companies used their alpha assets and managerial strengths—with the help, of course, of some good fortune—to win in China.