“I’ve played heads-up poker against Phil Hellmuth,” says David Sacks, name dropping the 1989 World Series of Poker champion who occasionally stops by his exclusive Silicon Valley card game.
Sacks is no stranger to fierce competition, and that will come in handy. He’s now the CEO of Yammer, a three-year-old startup that seeks to bring social networking to the enterprise — just like so many other outfits across the industry. “The market for enterprise social software has probably tripled in the last 18 to 24 months,” Gartner analyst Anthony Bradley tells Wired.com.
Startups like Socialtext and Jive are racing alongside Yammer. Salesforce.com offers its Tweetbookian Chatter service to businesses. And now, the big name IT outfits are getting into the game, with IBM pumping money into its Connections application, and Cisco acquiring collaboration outfit Versly. Even Google Plus, Twitter and Facebook — if an IT manager so dared — are available for workplace collaboration, and new startups keep sprouting up.
“I do wish VCs would stop funding Yammer knockoffs,” says Sacks, half-joking from behind a desk at Yammer’s San Francisco offices. Outside his door, his engineering teams banter over the cubicle walls about how to “optimize flows.” Laptops in hand, they file in and out of conference rooms named after playing cards. One meeting just broke up in the Ace of Spades.
Despite the heavy competition, Yammer has found a niche, and it did so by borrowing a trick from the world of consumer internet services: Freemium. If you opt for the basic service, Yammer costs you nothing. A user simply signs up with his company email address — whether he has approval from his company or not — and Yammer creates a dedicated social network for the workplace. Anyone with that same domain can join and participate.
Sacks jokes that unlike consumers, enterprise outfits will actually pay for software. Within 18 months of its initial launch, Yammer hit the million active user mark. From there, it built a sales team that — like a poker player with a nut hand — could approach that CIOs and say: “Half your company is already using our product to communicate and manage projects within your offices. Would you like to bring this tool under your control?”
Sacks has a rather conspicuous history in the world of consumer internet services. After he completed a law degree at the University of Chicago and took a job at management consultancy giant McKinsey, he got a call from an old Stanford classmate, Peter Thiel. The uber-investor wanted Sacks to take over as chief operating officer at a little company called PayPal.
When eBay snatched up the payment company in 2002, Sacks moved to Hollywood and eventually produced the cult comedy Thank You for Smoking. This was a one-off venture, but at its core, he adds, the movie business isn’t that different from the software business. You need big investors, for one, and you have to find a way of organizing a collection of disparate — and rather frantic — teams into a cohesive whole. And once you release your product to the world, its tough to recover from your mistakes.
After Thank You for Smoking, Sacks founded Geni, a site that maps family lineages. But as he grew the company — and watched his various teams working together — he realized they needed a new way of communicating. Email was too restrictive for complex conversations. Instant messages weren’t complete enough. Meetings sometimes took up more time than they were worth. So Geni engineers built the first internal prototype of a corporate social network. Eventually, this morphed into Yammer.
With product in hand, the question was how to sell it. This was a business app, but getting that all-important meeting with a CIO can take months. To work around this problem, Sacks settled on the old Freemium setup. “We’ve attacked the enterprise the way a consumer software company would,” he says.
It’s a common tactic, and it seems to be working for many startups, including the San Francisco-based Box.net. You start with a consumer product that business users are likely to use, and once you have enough businesses users, you approach the businesses themselves.
But even Sacks admits that it’s still difficult to convince CIOs that social networks have a role in the workplace. According to Gartner’s Bradley, a large number of companies will ban such tools before they ever get off the ground within their organizations. “Managers may consider that chatter supercilious or even threatening,” he says.
Friending Growth Models
Despite this lingering unease with the technology, Yammer’s service continues to grow. The company boasts that over 100,000 businesses are using the product, and in September, it closed a fourth round of funding for $17 million.
The company also has a big-name backer: Sean Parker. Facebook’s founding president and Justin Timberlake doppelganger sits on the board. The product’s user interface bears a striking similarity to the Facebook news feed, but Sacks makes a point of saying that Yammer’s model is quite different from Facebook’s — and will stay that way.
When asked if Facebook’s improved group functionality — which lets members provide updates to specific groups, like, say, co-workers — is a threat to Yammer, Sacks says that while the feature certainly overlaps, the true value is that IT managers own Yammer’s feed — not the user. What’s more, the company’s revenue model will stay enterprise-centric. While roughly 80 percent of users are still on Yammer’s free product, he has no plans to advertise within the product or analyze user data on the back end. “We never own the data,” he says. “That would kill our model.”
Though Facebook eventually tore down the walls between the universities where the service was originally seeded, Sacks says Yammer has no plans to open up across all businesses — except in cases where two entities mutually agree to connect. An enterprise network, he says, should be kept secure and confined to a particular company, ensuring that employees don’t accidentally share sensitive discussions with the rest of the world — as so often happens elsewhere.