Yammer is Not Just Facebook for Enterprises: A Deep Dive with CEO David Sacks

10/13/11Follow @wroush

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what your coworkers are working on. It helps you avoid duplication and get your questions answered.

We find that Yammer reduces the sense of employee frustration. Deloitte Digital found that staff turnover was 2 percent per year among active Yammer users, compared to 20 percent generally. That’s pretty staggering, and the reason is that these employees feel more connected to their coworkers and to the company’s mission, and when that happens, they don’t want to leave. It’s the employees who feel isolated, and can’t find things, who are going to be less productive and are going to leave.

X: Let’s talk about your freemium business model. The way your pricing scheme works, it’s possible for a whole company to use Yammer without paying anything. How can you afford to offer that?

DS: It’s free for everyone to sign up. We want employees to try it and prove the value before we ask their companies to pay. This is a pretty radical idea in the world of enterprise software, but it’s pretty commonplace with consumer websites. We wanted to cut through this traditional process of software having to be sold before it can be tried and used. That’s why we do it.

X: How do you draw the line between the free and paid features?

DS: It’s based on functionality. What you get when you upgrade are a bunch of administrative features. You get things like Active Directory integration, SharePoint integration, moderation and control features. You can customize which applications are being used in the network. That, in a nutshell, is how we sell it to companies. We will bring the fact to their attention that a lot of their employees are already using it, and ask if they want these extra control features.

It feels like a good way for a brand-new category of enterprise software to prove itself. It would be infinitely harder if we had to go out knocking on people’s doors.

X: What are the potential exit scenarios for Yammer’s investors? An acquisition? Or can you see going public someday—that is, if you have the stomach for the chaos in the public markets?

DS: I think our goal would be an IPO at some point, but I’m not ready to put a time frame on it. I do think that what’s happening in the public markets won’t ultimately affect us very much. I feel like we are building a great business that is going to be important for the next 20 years, so what happens this month in the markets isn’t important.

I’m actually kind of rooting for a double-dip recession, because it’s gotten way too hard in Silicon Valley to recruit people. The demand for software developers in Silicon Valley is just insatiable. If all of the unemployed people around the country were software engineers, they would all have jobs. What we really have in this country is a skills problem, not a jobs problem. And the reason people don’t have the right skills is because we have an education problem. And the reason we have an education problem is deeply cultural, so it’s hard to fix.

X: Wait—I’m not clear on how a double-dip recession would make recruiting easier.

DS: One thing that tends to happen is that there has always been this trickle-down from what is happening in the public markets to the venture funding scene here—which doesn’t make sense, since Silicon Valley produces great companies even under bad macroeconomic conditions. We built PayPal during a major recession. But regardless, the spigot for funding tends to fluctuate depending on what’s happening in the public markets. So in that sense, if it were becoming a lot harder to finance starts and fewer stupid ideas were getting funded, that would alleviate the jobs crunch in software engineering.

X: What’s your most important priority for the next 12 months?

DS: The two big themes we’re stressing are integration internally and externally. It’s very important that Yammer integrate with all of the other business tools we talked about. Otherwise you will see this fragmentation, where every line-of-business app has its own social network. That means [focusing on] the activity stream API, the Sharepoint and Active Directory integration. Developing all those products has been very time consuming, but it’s a big focus for us.

The other theme is external integration. The idea of internal social networking is just now becoming mainstream; three years ago people were doubtful about whether the idea would work, and now everybody is realizing that every company is going to have its own social network. I think where we’re going next is this idea of private, external networks for B2B communication.

Wade Roush is a contributing editor at Xconomy. Follow @wroush

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