Why Yammer Said Yes to Microsoft: Q&A with Co-founder David Sacks

8/30/12Follow @wroush

I’ve been meaning to catch up with David Sacks, the co-founder and CEO of Yammer, for a while now, and we actually had a meeting on the books for June 6 at the company’s SoMa headquarters. That meeting got canceled, for reasons that went totally unexplained at the time. But it turns out that the excuse was a pretty good one: Sacks was deep in deal talks that day with Microsoft, which announced its acquisition of the enterprise social networking startup for $1.2 billion less than three weeks later.

I finally snagged a new meeting with Sacks yesterday, and there was obviously a lot to talk about, like how Sacks expects Yammer’s technology to contribute to the big reboot seemingly underway at Microsoft. More than simply changing its logo, Microsoft is in the process of “consumerizing” many of its enterprise applications, ramping up its efforts in cloud storage and services, launching a line of tablets to compete with the iPad, and overhauling Windows itself.

Sacks says the Redmond giant was attracted to Yammer partly because it’s the leading company applying social-networking concepts spawned in the consumer world to business. There are a lot of obvious places where Yammer’s systems can and will be integrated into Microsoft products such as Skype, SharePoint (the content management system), and Dynamics (the enterprise resource planning and customer relationship management system).

But Sacks, whose Silicon Valley experience stretches back to his days as chief operating officer of PayPal, says he’s also been told to keep navigating independently of the mother ship. That means Yammer will keep working with outside companies who want to make their own apps run on Yammer’s platform—such as Kanjoya, which earlier this month announced a sentiment analysis plugin that lets companies gauge their employees’ morale by monitoring the buzz on Yammer.

My conversation with Sacks, which is reproduced below in lightly edited form, also ranged to subjects such as Yammer’s impending move to the Central Market district of San Francisco; what Microsoft looks like from the inside; education and the talent crunch at tech companies; and precisely what he meant in a now-notorious Facebook post from August 17 where he said “Silicon Valley as we know it may be coming to an end.” Read on:

Xconomy: I was just in your lobby absorbing the buzz, and compared to the last time I visited Yammer’s offices, it seems like you’ve both expanded into more space and squeezed in more people.

David Sacks: We were the last man standing in this building [410 Townsend]—we outlasted both Zendesk and Eventbrite. In our original lease I had wisely inserted a right of first refusal on any new space in this building, and when Eventbrite moved out we got their space. When Zendesk realized they weren’t going to get that space, they moved out. But now we are out of space anyway, so we are moving into the Twitter building on Market Street.

X: Why did you stay here so long? Do you really like this building for some reason?

DS: It was just to avoid the disruption of moving. But I do like this building. It’s across the street from Caltrain. As soon as you move offices you have to make people rethink their commute, so moving is a hassle if you can avoid it. But the new office will be great. We’ll have 80,000 square feet, and importantly, everyone will be on one floor.

X: Were the tax incentives available to startups locating in the Central Market neighborhood a factor in your decision to move?

DS: I think they had an indirect effect in the sense that it was a catalyst for that area gentrifying a little bit. But I think we would have moved there even without the tax incentives. It’s a really good space. There aren’t that many places in the city that have 80,000 square feet on one floor.

I think [the incentives] got the ball rolling in that whole area and it really worked; I hope the city keeps going with it. I think it’s going to be a whole tech mecca. This building has been the epicenter for tech startups, but I think it’s going to move to that building, with us there, and Twitter, and One Kings Lane.

X: Okay, on to the big story. The Microsoft acquisition of Yammer raised a lot of eyebrows, not least because Yammer looked like the kind of company that could keep growing and stay independent for a long time. What were the arguments in your own mind for exiting now, versus staying independent longer?

DS: We didn’t go looking for this opportunity—Microsoft came to us. We weren’t shopping the company or anything like that. We were happily pursuing our path and Microsoft came to us, and we just realized that we could do a lot more together than we could separately.

Specifically, we thought a few things: One was that Microsoft can take us to another level of scale and reach. That is huge. And the second one, on a product level, is that … Next Page »

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

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