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Enterprise Social Networks Have “Crossed the Chasm” — Inside Scoop with Yammer CEO David Sacks

Interview with on Mar 25, 2012 Editor's Pick No Comments

CustomerThink Founder/CEO Bob Thompson interviews Yammer CEO David Sacks about how Yammer has evolved since it was launched in 2008; how to build the business case for enterprise social networks; and tips for success.
 

Interview covers the following topics:

David Sacks, Yammer

You can read the transcript below or listen to the audio here:

Interview recorded March 14, 2012.


Transcript

Bob Thompson:
Hello, this is Bob Thompson of CustomerThink, and for this episode of Inside Scoop, my guest is David Sacks, who is Founder, CEO and Chairman of Yammer, a provider of social networks for businesses. David is a veteran of the Internet space, having started at PayPal in 1999, where as Chief Operating Officer he took the company to an IPO and an eventual sale to eBay for $1.5 billion. And apparently, he decided he was too young to retire because since then, he’s been active in the industry as an entrepreneur, an executive and an investor.

In 2008, he launched Yammer. Today, we’re going to be talking about what’s new with Yammer, why companies should invest in social networks for their companies, and maybe we’ll get David to share a couple of tips for success. So, David, welcome to Inside Scoop.

David Sacks:
Hi, how are you?

Bob Thompson:
Great. All right, I’ve been following Yammer for the last couple years. Can you talk about why you thought launching Yammer was a good idea back in 2008?

David Sacks:
Sure. So, our fundamental conviction was that social networking is the communications revolution of our time. Even back in 2007 and 2008, we thought that everybody was eventually going to have a social networking account. My Space was sort of the dominant social network back then. We thought it would probably be Facebook. We didn’t know for sure, but we were pretty sure that everybody would eventually be using social networking to communicate with their family and friends. And communication revolutions that start in either the consumer or enterprise space don’t just stay there. They always kind of move to the other one. And so, we started thinking about where social networking would go next. We felt that there would be a need for employees to use this type of technology inside companies. So, our mission is to bring social networking inside enterprises as a private secure solution to improve communication and collaboration within companies.

New Yammer Functionality

Bob Thompson:
You’re kind of positioning it as you thought it would be inevitable that companies would want to use this technology. In the early days of Yammer, it was positioned as kind of like “Twitter for the enterprise.” And I know that since then, there’s been a lot of changes that have been made, a lot of upgrades and new features. Can you highlight some of the bigger ones over the last maybe year or 18 months?

David Sacks:
Sure. Right, when we launched Yammer, it was primarily about feeds and profiles. It was kind of dubbed “enterprise micro blogging,” which was never entirely accurate because we don’t have the 140 character limit. And it’s not blogging; it’s not public. But nonetheless, that was sort of a useful thing to kind of hang our hat on and for people to kind of easily understand what we were trying to do.

Over the past few years, we’ve been expanding the functionality to be a more fully-fledged social network, so when you post on Yammer, you’re starting a conversation. It’s not just kind of like a tweet, it’s more of a conversation in the Facebook feed. We’ve added groups, we’ve added a lot of functionality within groups to make them into effective teamwork spaces. So, you can do things like store files and share files. We have a feature called Pages, which is like our next generation Wiki. So, you can essentially create content on Yammer collaboratively with other people. You can actually create pages at the same time, sort of multiple authors working together, and we kind of color-code the cursor.

We’ve added a lot of integration features. We will pull in activity feeds from other enterprise software like Sharepoint or SAP or Salesforce, Netsuite, Box, and a dozen other vendors. And, in fact, any third party app can now push activity into Yammer or use our Yammer Connect API, which is similar to the Facebook Connect API, so they can essentially allow Yammer users to take their identity with them into their app. So, there’s been a lot of work around our platform, around releasing apps and this, in general, making Yammer into a more fully feature social platform.

Voluntary Employee Adoption

Bob Thompson:
OK. Now I remember when I talked with one of your managers back in, I think it was October of 2010, I was told that Yammer was growing largely through a viral approach. You have a freemium model. Anyone could start a network inside of a company and it would grow, but to get more administrative features and security and other sorts of things that you need to upgrade. Is that still the case today?

David Sacks:
Yes. We are seeing some top down deployments of Yammer where our company would do an RFP and we’ll compete for that business and then win, and they’ll roll us out top down. But the way that Yammer’s been able to grow to over four million corporate users in only three and a half years is because the employees are pulling us in. And like you said, any employee can just sign up, start using it and they can start spreading it to their coworkers.

So, this idea of voluntary adoption, I think, is what really characterizes Yammer. To my knowledge, it’s the first productivity software that’s been broadly adopted voluntarily by employees. Instead of having it mandated to them by above, the employees will actually seek out this tool and use it because it makes them real productive. And that’s really, I think, a watershed in enterprise software.

Bob Thompson:
Yeah, I think it’s a very creative way of spreading adoption. But I was kind of curious… How does a company that has seen some adoption of Yammer and that’s being started in one department and a few other people started adopting it and then it spread to a third department and a fourth department, and now it’s being used around the company, but maybe not universally, and then somebody says, “You know, we really ought to make this a solution or an engagement layer,” if you like that term, “for everybody.” And now, somebody’s got to step forward and fund it. So, who funds it at that point because now it’s not a departmental thing, it’s really they’ve got to support other departments. So, it seems like it does turn into an enterprise issue when you start talking about money.

David Sacks:
Right, so typically, it’s IT or corporate communications who ultimately pay for Yammer. Sometimes, they will charge it back to departments, which use it, sort of pro rata, but as a company-wide communication tool, Yammer is usually owned and managed by the departments, which own those kinds of tools, IT, corporate comm.

Building on First-Mover Advantage

Bob Thompson:
You recently scored some new financing, $85 million, I’m told, and have total financing of $142 million. Can you talk a little bit about why investors think Yammer is such a great opportunity? That’s a pretty big round to pull in at this point. How’s the money going to be put to use?

David Sacks:
Right, so on the opportunity, I think Yammer is leading two movements. The first one is just to bring social networking inside the enterprise. We were the first mover in creating this new category of enterprise software, enterprise social networking. And we’ve seen adoption across really every major industry vertical. We’ve seen adoption geographically across the whole world and in companies of all sizes, from Fortune 500 companies down to little startups in Silicon Valley. So, it’s our belief that every company will eventually need its own internal social network. The market size here is just huge, and there just aren’t that many new categories of enterprise software that come along. So, I think that had a lot of appeal to our investors, our growth rate, the first-mover advantage and our product vision.

And then I think the other movement that we’re kind of leading is this idea of consumerization — making enterprise software as easy to use as consumer software sites like Facebook or Twitter — raising the bar for usability, so that employees really love to use the product, enough to want to invite their coworkers. So, that idea of involving employees in technology decisions, that’s going to be as important, I think, to the future distribution of enterprise software as the cloud was. And so, we’re leading that movement as well, and I think that’s exciting to investors.

Bob Thompson:
I actually have one more question just about the industry. If somebody says two years or three years ago, you were a first-mover, but now it seems like everybody’s thrown their hat in the ring in on form or another, we’ve got SalesForce.com with Chatter, Tibco’s got Tibbr. Social is being integrated into a lot of business applications. What’s your pitch on, if you’re talking to a CIO, let’s say, and they said, “Why should we choose Yammer instead of one of these other options in the market?” What do you think is your distinct advantage over some of these possibilities?

David Sacks:
I would say that it’s around usability and adoption. We believe that because we were first, we actually have the best feature set, but I would argue that companies should be on feature checklists because you should always weight the features by the ones employees actually want to use and the usability of the product. So, Yammer is the only one of these products that’s grown explosively because the employees actually love to use it.

Enterprise social networking is not like other categories of enterprise software where you can simply mandate that people use it. You can’t force people to share. If they just don’t like the tool, they just won’t share anything and the engagement will be very poor. So, as you look at a lot of these other tools, the usability just isn’t there, the employees don’t really want to adopt it. In some cases, the software is fundamentally our departmental tools, where you might get like the sales team wanting to use it, but the rest of the company won’t want to go into it. And so, what we will do, we will actually pull in feeds from all of these different departmental tools. So, like I mentioned, we integrate with Salesforce, Sharepoint, SAP and others. We will bring all those feeds into Yammer. So that will be another selling point, as well, is that we are the super set of all your business activity feeds. We will pull all of your business data together in one place. You don’t have to have a dozen different social networks as all these departmental tools start adding feeds.

The Business Case

Bob Thompson:
Let’s change gears here a little bit and talk about a very important topic, which is the business case. I’m sure you’re a student of “crossing the chasm” sort of thinking, that what the early innovators and adopters do is not the same as the followers. And it seems to me like one of the problems that the internal social business community is struggling with is making this business case.

I remember listening to the people that you had at the panel at your event last year in San Francisco, and they were all true believers. They had cultures that were collaborative. They had a great story about how it was helping them. When you start talking to the broader market, what is the argument about why they should they invest in these enterprise social networks? Is it a leap of faith, is it about productivity? In your opinion, what is the real driver for why they should be going this direction?

David Sacks:
Yeah, so I think one of the things we’ve done over the last couple years is a lot of work on quantifying and kind of itemizing the ROI. And, in fact, we hired Forrester to do an ROI study in the space, and they looked at four large enterprises using Yammer with over 5,000 employees each on the tool. And they were able to itemize a whole bunch of different use cases that Yammer has benefits with.

For instance, there’s things like on boarding new employees. It’s very easy to get them up to speed on Yammer. They can see what people in the company have been talking about for the last several months. It’s not like they have to kind of go in search of information on a company Internet that may be stale. So, employee on boarding is a big one. We see a lot of benefits around retention. Deloitte Australia found that their employee retention increased by an order of magnitude. Employees feel more connected to their coworkers and to the company’s mission.

We see benefits around crisis communication that when there’s a major crisis – it could be a national disaster like the earthquake in Japan or the oil spill in the gulf or even floods in Queensland, Australia – Yammer was used in all those situations to help employees get information and stay in touch with each other.

We see use cases around speeding up customer resolution times. Nationwide Insurance has used it in their customer service center and they’ve seen cases that would have taken them weeks to resolve, resolved in two hours. So, we see a lot of different use cases. In fact, there’s almost too many use cases to go over in one sitting. And so, part of what we have to do is find out from the customer what they’re interested in accomplishing and try and map the value of Yammer to the use cases they’re trying to accomplish.

Bob Thompson:
Why is there still concern — or at the very least, questions — about the ROI story? There’s a recent report that came out from Altimeter Group that notes “mixed results.” And it’s talking about some of the things that you just outlined. Enterprise social networks should encourage sharing, capturing of knowledge, enabling action, empowering employees. But when they polled the companies in the study, the reviews were kind of mixed about how well it was helping them. So, do you agree that that’s a problem in the industry?

David Sacks:
Well, I can’t speak to the success of other vendors. When we’ve polled our user base to find out if people are getting benefit out of the product – we polled 10,000 users and 85% recommended that their company roll it out to all employees, and that they were getting benefit out of it. And then we had other questions, which itemize the benefit. Some of the common things were getting quicker answers to questions, finding expertise, collaborating more effectively in team workspaces. I mean the list goes on and on.

I think to your point about why is there a little bit of, let’s call it fuzziness around the ROI, if you will? It’s because this is a new communication technology. So, if I were to have asked you 15-20 years ago, what’s the ROI of e-mail, I think you would have been equally hard pressed to quantify exactly what it was.

Bob Thompson:
Yeah, great example.

David Sacks:
Yeah, but as soon as you use it, I think you intuitively understand just how powerful it is, and I think there’s a lot of truth to that, too. We spend a lot of time going through these use cases and explaining one by one why there are all different types of benefits that you can realize with a tool, but it’s almost like saying that e-mail can be used to accomplish all of these things. Yes, it can be, but it kind of misses the larger point that this is a new, much more efficient way of communicating.

Bob Thompson:
Right, but doesn’t it take an executive ultimately that’s going to fund this, to get the vision for this, as opposed to – I mean in process automation, you have stuff coming in, stuff going out in a certain amount of time. If you can manage that process more efficiently, it’s very easy to say, “You know what? We’re going to create these very tangible business benefits.”

But we’re talking about productivity. I actually sold email to one of my customers, and it was very challenging when they weren’t really believers. The productivity argument is kind of fuzzy, so does it take an executive that somehow gets it? Maybe we need to go create a business case that looks good, but fundamentally, you’ve got to have somebody who’s willing to stand up and say, “Look, this is where communication is going. We’re going to get behind it.”

David Sacks:
Yeah, I think it takes an executive who either has that vision or is simply open-minded about it. This is, I think, one of the big benefits of Yammer having this voluntary adoption pattern, is that companies can see the product in action for free and experience it. And then you can kind of build a business case from there. So, it’s a way to kind of de-risk adoption in the company. If a company isn’t using Yammer, there’s no reason for them to even talk to us. So, I think part of our strategy for mitigating the company’s risk has been to give it away to them for free so that they can experience it in action, see the benefits for themselves, so that it’s not this big leap into the unknown.

Bob Thompson:
So, you’re not selling them as much as they’re proving it to themselves. Is that the idea?

David Sacks:
Yeah, there’s still an important dialogue that has to take place, partly with the IT department, to explain why we’re secure, reliable and can integrate with their other tools. And partly with line of business owners to explain how we’re going to map this tool to their existing processes and get business value. But the fact that it’s so easy for them to get started with and to start understanding how it works, that they can experience it for free to try it out — try it before you buy it — it helps make all these things much more tangible.

Tips for Success, Growth Plans

Bob Thompson:
Do you have a quick tip you can share with our listeners and readers? You’ve been at this for now over three years, you’ve got some pretty big brands that have been using your solution. What’s a quick tip you would offer to help people be more successful as they head down this path?

David Sacks:
Well, our view is it’s all about getting the employees to engage with it because without employee adoption, there is no ROI. And so, I think that you’ve got to have the right balance between top down and bottom up. From the top down, I think you want to sanction the product and let people know that it’s OK to use. And I think it is helpful to create some structure around it, mapping groups to existing departments in your company, integrating it with your other tools, integrating with Active Directory. And then you also have to leave enough room for the self-organizing, kind of bottom up behavior where you let teams create groups for their projects and things like that. You want to have both sort of a structured and make room for the self-organizing approach, as well. That’s the balance that Yammer really tries to strike.

Bob Thompson:
Right, it’s not a forced march, but you want to be supportive, is that the idea?

David Sacks:
You want to be supportive and then also create some space for the employees to prove that they want to use this, as well.

Bob Thompson:
Have you seen anything in your experience that would say if you’re doing this, it’s probably going to kill the project? Is there some sort of worse practice that leaps to mind?

David Sacks:
A “worst practice,” that’s interesting… The nice thing about best practices is they spread. We promote them. I don’t know that there’s any worst practices that people do that have somehow created huge problems.

One point along those lines, you mentioned you sold email to a large customer, you mentioned “crossing the chasm,” Geoffrey Moore’s theory. I feel like we’ve crossed from the early adopter phase of this technology life cycle to the tornado or where it sort of rapidly moves up the curve. Because it’s not just early adopter-type companies who are Yammer customers now. We’ve sold Yammer to Deloitte, GE, Capgemini, Chevron, Shell, Xerox – I mean the list just goes on and on. It’s a lot of blue chip companies. Four of the top ten largest companies in the US by revenue are now Yammer customers. I’m not talking about free networks. I’m talking about people who have signed enterprise license agreements. Three of the top ten oil and gas companies in the world, three of the top ten construction engineering companies in the world are Yammer customers. And it goes on from there.

So, it’s not just sort of technology, cutting edge or bleeding edge type companies are using it. We’re now seeing a wide diversity of traditional enterprises embracing enterprise social networking.

Bob Thompson:
Well, what would you like to see Yammer be in, say, another couple years? Currently, as I understand, you’ve got four million, is that right, paid corporate users?

David Sacks:
Yeah, we ended last year with four million corporate users. We expect to double this year or somewhere around there to eight. In about a year from now, we’ll probably be at ten. I think we’ll just keep scaling up. We’re actually growing at a rate that’s very similar to LinkedIn in the early days, and they have over 150 million users today. So, I think that Yammer and tools like it are just going to become more and more ubiquitous, and I guess that’s really what we want to see over the next few years is that this is enterprise social networking reaching its potential and starting to get deployed everywhere.

Bob Thompson:
All right, well David, thank you very much for your time. It’s really been great getting an update on Yammer and some of the issues about ROI.

David Sacks:
Absolutely, thank you.


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