Randy is VP and Senior Business Analyst at Avondale Partners, as well as a veteran commentator on the Job Board and Staffing Sectors. He’s one of our keynote speakers and kicks off Day Two, giving an “Analysts Overview of Where We’ve Been and Where are We Going”.
Randy certainly has his finger on the pulse – nine months ago he wrote in one of his analyst reports that the LinkedIn share price was too high! We always find his comments insightful and we’re delighted that he’s joining us in Chicago.
My first question to Randy centred on his prophetic view on a certain professional network cum hiring solution: So why did the Avondale Partners research downgrade the rating on LinkedIn in mid-2015?
“Our research effort is led by a focus on staffing companies, which tend to be on the leading edge of change in the recruiting world. Staffing firms adopt new tools and methods sooner, and they’re quicker to push back when fads go too far. Staffing firms were wild about spending more on LinkedIn Recruiter and Jobs in 2013-14. They began to pull back on subscription renewals in 2015, recognizing that recruiters of ordinary ability were prone to waste time using the Recruiter product to pursue dead-end candidates. LinkedIn has several sources of revenue that can distract investors from the most important business: Hiring Solutions. By mid-2015, we had concluded that LinkedIn Hiring Solutions was on the verge of a sharp deceleration in revenue growth. Given that we viewed Hiring Solutions as the most important business of LinkedIn, we downgraded our rating. LinkedIn reported third quarter 2015 results that were well-received by many investors and analysts. We grew more concerned as – under the covers – the US Hiring Solutions business had grown revenue at an annualized rate of 24%, down from 46% in the previous quarter. “Moreover, membership growth rates at LinkedIn had begun to decelerate in all geographic markets. We knew US member growth had to slow from high market penetration. But by the second quarter of 2015, all markets were below 30% growth rates, with EMEA and the rest of the Americas closer to 20%. “US member growth had not dipped below 25% until 3Q 2014. Other, supposedly less mature markets were not supposed to be that close to the US trend. Member growth is a critically important driver of demand from recruiters. “LinkedIn had become a $30 billion market capitalization company on the strength of its extraordinary growth rate. Investors did not recognize that, in the burst of recruiter enthusiasm from 2011-14, LinkedIn had penetrated the market at a much faster pace than it ever would again.
“That was our call, and it proved prescient”.
Randy pulled on 20 years worth of insights to answer my next question: “What has happened to the U.S recruitment market since 2000 and how might this impact on us today and in the future?”
“The first thing that went wrong for recruitment advertising in the United States was the price point.
“Forrester Research at one time believed that job boards would feast on $7 billion worth of online help-wanted advertising spend by the year 2005. Chief explanation for that forecast? In 2000, US employers spent $8.7 billion on print help-wanted ads, according to the Newspaper Advertising Association. Further, the high cost of print ads had kept perhaps three-quarters of US job openings from being advertised. In the digital age, Forrester guessed, employers would pay to post all their jobs online, and the price point would be about 20% of where print had been.
“So what really happened? Annual spending on print help-wanted ads fell by $3.6 billion from 2000-05. Online recruitment spend (including more than ads) rose by $0.8 billion. Yes, it appears that the industry converted each $1 of print spend into $0.20 of digital spend. But the number of paid advertisements fell far short of the once-glorious expectations.
“In fact, between 2005-10, with a Great Recession in the middle, annual spending on print job ads fell by $4.4 billion. Online recruitment spending rose by $0.2 billion. Over that span, average monthly online job postings in the United States grew from about 2.7 million to 3.5 million”
Randy’s insights cast a clear light on what we’ve all been living through – and we saw the same trend in the UK, where a £2.7bn print market was eroded by 70% in the migration from print to web and, to date the “market value” has never recovered, nor will it. We seem to have moved from a “value” based print market to pure Job Board based “transactional one” – though interestingly in Europe we did not see the same trend and Job Boards have managed to maintain a good yield per posting.
So What Have We Been Living Through – And Where Are We Now? Here are Randy’s Key Insights:
- The job board industry was dominated by current and former newspaper industry leaders who kept street pricing of job postings high. Much of the ad volume was funnelled through newspaper-job board revenue sharing agreements, which inflated pricing and costs.
- Google’s innovation – the relevance-ranking search engine – enabled savvy employers to get attention to their corporate career sites without the use of paid job listings.
- Ever since about 2005, unpaid job ads have grown faster than paid ads. The emergence of the Indeed.com job listing search engine as the leading destination for online job seekers accelerated the pressure on job board spend.
- Employers had to follow the job market into the digital realm. By 2015, not only were more than 75% of active job seekers looking online (according to Pew Internet Research surveys), but more than one-half of all American adults had done some part of a job search on the Internet.
- Employers naturally moved beyond paid job boards and competed directly for the attention of workers. The massive audiences available on social media sites gave some employers fast-rushing streams of potential candidates.
What Are Randy’s Views on the ‘Wider Recruitment Picture?’
Recruiters’ biggest problems, 1995-2000:
- Competing for professional/technical talent against the “hot” industries with high stock-based compensation.
- Dealing with the sudden decline in productivity and soaring cost of print recruitment ad campaigns.
- Balance spending on internal and external recruiting resources.
Recruiters’ biggest problems, 2001-07:
- Adapting to the massive scale of online recruiting and trying to develop wholly new processes around this new source of candidates.
- Confronting the challenge of candidate research and relationship management on a large scale.
- Dealing with clunky digital applicant tracking systems and corporate career websites that angered applicants as often as they accepted them.
Recruiters’ biggest problems, 2008-13:
- Filter tremendous volumes of active, unqualified job seekers from the online applicant stream.
- Develop research methods for identifying and connecting with attractive recruiting targets.
- Manage frequent fluctuations in the corporation’s urgency about hiring.
Recruiters’ biggest problems, 2014-16:
- Recognize swift change in the labor market, make competitive offers fast enough to close hires of high-impact talent.
- Hire productive recruiting talent fast enough to keep up with need.
- Develop better ways to present job openings to appropriate social media audiences and convert the applicant traffic into usable candidates.
Obviously, some are headed in a better direction than others …
Over the past few years, old-guard job board operators – CareerBuilder, Monster, Dice (DHI Group) – have struggled to hold revenue close to flat. Emerging leaders LinkedIn and Indeed have gained market share at an impressive pace. Over the past two-and-a-half years, the legacy job boards saw their revenues shrink at a (5%) annual rate. LinkedIn and Indeed grew jobs-related revenue at a 40% annual pace. (Many in the industry would be surprised to learn that CareerBuilder and Monster have declined at virtually the same rate. CareerBuilder’s corporate image campaign has been far more effective than Monster’s.) LinkedIn exploded in size because of the compelling value proposition of its direct candidate research and sourcing solutions, led by LinkedIn Recruiter and Company Pages. Indeed is the giant among job search engines, driving more traffic than all other aggregators combined. Randy forecasts that spending on LinkedIn Hiring Solutions and Indeed will surpass $740 million in the second quarter of 2016, almost twice the revenue of CareerBuilder, Monster and DHI Group combined. LinkedIn and Indeed are gaining market share because they feed directly into the recruiting business’s “hot buttons” of recent times: direct candidate sourcing, social sourcing, and broadening of job post distribution.
Recruiters’ biggest problems, 2017-20:
- It will be hard to avoid choking on the demands of corporate leadership – who will begin asking recruiters to insource procurement of temporary, seasonal and contract labor, while the recruiting of high-value talent becomes more difficult.
- Competition for experienced recruiting talent will be difficult, leading employers to lean on more green hires – and deal with more attrition.
- Job marketing will begin to make the transition to cross-media, cross-platform, programmatic buying, and a lot of spending will be done without anyone knowing whether the winners and losers are justly decided.
- The cheap-and-easiness of candidate flow will subside as social media mature and recruiters begin focusing on targeted campaigns.
Randy’s insights are profound and very illuminating. I have to say this was one of the most interesting and learned interviews I’ve done and I found myself agreeing with almost all of what Randy shared. I’m looking forward to hearing him speak at the summit and sharing more of his deeply relevant observations.