LinkedIn loses a CEO, gains a Yahoo

Recessionary times should be glory days for LinkedIn, as people furiously network on the business-contacts website for scraps of work. But instead, it's LinkedIn CEO Dan Nye who finds himself out of a job.

LinkedIn's voluminous founder, Reid Hoffman (shown here), envisioned the site as the embodiment of his voracious appetite for meeting business partners. Social networks? Useless fluff, when everyone who walks through the door of Palo Alto's Coupa Cafe is someone Hoffman could hire, invest in, or strike a deal with.

Despite its business focus, LinkedIn has struggled to make money. Its main revenue stream, premium accounts for heavy users, depends heavily on recruiters, who are looking for jobs themselves these days. Under Nye, an experienced software salesman, the company toyed with becoming a so-called "expert network," an operation which matches up people hungry for knowledge with those who have it. Stock traders, especially, pay handsomely to talk to executives in companies whose shares they want to trade — a part of the business which can veer on breaking insider-trading laws, if contacts aren't carefully monitored.

Bain, the management-consulting firm, was so interested in the potential for this kind of matchmaking that it invested in LinkedIn's most recent $75 million round, which valued the company at $1 billion. But the ineptness of LinkedIn's middle management meant that the expert-network product never got off the ground. And the business as a whole badly missed the financial projections management had given investors, which infuriated Bain and others.

This may explain why Hoffman abruptly cancelled a trip to Japan, where he was due to speak at a conference, to oversee the company's recent layoffs. The company has hired a former Google executive, Dipchand "Deep" Nishar, and Jeff Weiner, a former top executive at Yahoo, has stepped in as its interim president.

Hoffman may have to do far more to save his company. A gregarious fellow who has invested in a host of startups, Hoffman is famously nice and good-hearted. And he prefers the dreamy work of strategy to the hard tasks of building a business. Is he prepared to fix LinkedIn? Or does he still think his company's problems can all be solved by making the right connections?