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Finding Gold in Enterprise Social Networking

By March 30, 2010Article

Experts have debated the exact value of “Enterprise 2.0” for years. But say “Facebook for the Enterprise,” and an immediate picture of market potential becomes clear.
Yammer is one of the leaders in the fast-growing enterprise social networking (ESN) field. The San Francisco company announced a $25 million round of funding last week — its second round this year. In just two years, Yammer has gained users in 80 percent of Fortune 500 companies and 136 countries around the world.
Yammer CEO David Sacks is a serial entrepreneur, who was the founding COO of PayPal, founded, and produced the 2005 movie “Thank You for Smoking.” Sacks spoke with about overcoming initial concerns about the idea of ESN, the business benefits of ESN adoption, and the ways in which other software companies can leverage Yammer’s enterprise network. What is the state of enterprise social networking adoption today?
David Sacks: In a very short amount of time, enterprise social networking has gone from a concept many considered dubious to one that now seems inevitable.
We started thinking about how to bring social networking and real-time communication inside the enterprise back in 2007, before Twitter had even taken off. We built Yammer as an internal tool at Geni, used it ourselves for six months, and then launched it as a stand-alone product in 2008 at the TechCrunch50 conference, which we won. Since then, Yammer has been adopted at over 100,000 companies and organizations.
That kind of success prompted other companies to enter the ESN market. But many shied away from the idea of being called a “social network,” fearing the very name would imply a non-business purpose.
When Salesforce first launched its Yammer knock-off, Marc Benioff declared “don’t call it a social network.” Now he’s copied Yammer’s positioning as well. This only proves we had the right idea, the right product, and the right conception of what we were doing.
He who defines the category usually wins the category. How have concerns over security been handled?
David Sacks: Security is always a key issue and the first objection any SaaS vendor encounters. We proactively engage with corporate IT to address their concerns. Yammer offers security features like directory integration (via SAML), single sign-on, IP-range restrictions, and two-factor authentication, which we collectively call our “virtual firewall” solution because a company can require that the only way to login is through the company’s VPN. We’ve now sold Yammer to dozens of Fortune 1000-type companies, we’ve never failed a security review, and we’ve never had a security problem. What benefits have companies received from adopting enterprise social networking?
David Sacks: Yammer improves the flow of information, collaboration, and sharing of knowledge and expertise within companies. As a result, employees feel more connected to each other and the company’s mission, which drives greater employee engagement and commitment to corporate goals.
In an internal study, Deloitte Australia found that use of Yammer is strongly connected with reduced staff turnover. Professionals with 10 or more posts on Yammer had an average turnover rate of 2 percent, compared to a firm-wide average of 15-20 percent. In that case, increased employee engagement translates into huge cost savings in recruiting, hiring and training new workers.
Employees also say that Yammer makes it easier to find the right information to do their jobs. An internal survey by one of our customers found that active Yammer users save three to four hours per week from improved connectivity. If the average work week is 40 hours, that’s a 10 percent productivity increase. If the fully-loaded cost of knowledge worker is $100,000/year, that’s a $10,000 per employee impact on the bottom line. How has Yammer leveraged the “freemium” model to drive growth?
David Sacks: Yammer has grown to over 1.5 million users in just two years because of the freemium model. Any employee can sign up for Yammer for free by confirming their company email address. Then they can invite their co-workers. Eventually Yammer makes money when a company decides to buy premium tools and upgrade its network.
Over 15 percent of our users are in paid networks. We don’t permit any type of advertising or sponsorship as part of the model. All of our revenue comes from paying enterprises. How can other software vendors work with Yammer to drive usage of their own products?
David Sacks: Yammer will launch an application platform that we demo’ed at TechCrunch Disrupt in September. It is currently in private beta with companies like, Lithium, Zendesk, Rypple, Expensify and others working on applications. Because enterprise sales forces are expensive to build, we can help solve the distribution problem for a lot of enterprise apps.
We see an opportunity for the whole SaaS universe to participate. In contrast to the approach of traditional enterprise suite vendors, we’re not trying to create a proprietary stack of applications.
Our objective is to create the best-of-breed enterprise social network and let other people layer their applications on top of our platform.
Our platform will have no proprietary languages – only lightweight “hooks” to integrate with other sites. We don’t want to trap people in our ecosystem. We want to offer smaller vendors a chance to leverage off of our model and focus on what they’re best at – developing their own best-of-breed SaaS applications.
The shift to the cloud provides a unique opportunity to disrupt the traditional model where one vendor tries to provide all of a company’s core apps. We’re trying to usher in a best-of-breed revolution in enterprise software where everyone focuses on what they’re best at and works together through open APIs. If we let one company dominate SaaS applications, then the disruptive moment will have been lost and a dark cloud will descend upon the enterprise.

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