The recruiting industry has always been lucrative. With 35% of a recruited individual’s annual salary as a typical fee it certainly paid well. Except there’s a new kid in town and he’s good and much cheaper.

To understand the disruption you first need to understand the basics of the recruiting industry. It’s fundamentally an arbitrage play. Recruiters typically have deep relationships in either an industry sector, (e.g. manufacturing) or a functional area (e.g CEOs).

They use these assets to find the right person for the job – their core value proposition. While they perform many valuable activities along the way: Job posting, advertising, screening, interviewing, etc., it’s their ability to FIND the right candidates to put through the process that people are paying for. And that’s based on experience and relationships and networks. The best of the best always had the right connections and networks and that’s what you paid for. Hence the “pay a percentage salary” versus paying for time spent.

But what is LinkedIn but a network of relationships of 40 million professionals around the world? And for a measly $500 per month you can have access to them all. And what’ s even better, the recommendations on each profile are real. They can’t be faked. So, combine access to the information of 40 million professionals, inexpensive geo-targeting ads, with an ability to read and follow-up on recommendations and you have not only replicated the recruiters network, you’ve taken it to a whole new level.

Take this asset and put it in the hands of a former HR professional and magic occurs. The revenue models are changing to a time based fee versus access to the network base fee. And with fees 1/3 to 2/3 less than what traditional recruiters charge serious disruption is going on. Add that to a recessionary economy and now is not a good time for recruiters to say the least.  They are being commoditized.  How will they escape?

So what lessons can we learn?

• Social networking sites are huge repositories of personal and professional information. (no kidding)
• Prior to these social networks, industries had high costs to access specific types of this information and so their revenue models reflected that. (Recruiting and professional experience and recommendations)
• With cheap access to this information on a massive scale, new much cheaper revenue models become available, disrupting the old industries.

So what does the future bring?

Here is another industry that this massive information storage could disrupt. Personal behavioral information and the personal insurance industry.

What other industries do you think could be disrupted based on access to previously expensive information about people?

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