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

It took enterprise social networking startup Yammer 18 months to gain its first million users, nine months to add its second million, and only six months to add its third million. At that rate of increase, according to my calculations, the startup will have 20 million users by late 2012, and 7 billion by 2014.

Okay, I’m joking about the 7 billion part—there aren’t quite that many people yet on Earth, and not even Facebook has figured out how to serve people who don’t yet have computers or smartphones. But considering how many people do work in wired, knowledge-based enterprises around the world—about 500 million—“the addressable market is enormous,” says Yammer co-founder and CEO David Sacks. “We are in 160 countries, and we are just getting started.”

If you aren’t an employee at one of the 100,000 businesses using Yammer, the freemium Web-based platform will look familiar to you anyway, as the central news feed—where employees can post status updates, links, videos, photos, documents, and other materials—is unapologetically modeled after the same feature at Facebook. Yammer is hardly the only imitator out there; Podio, Jive Software, SuccessFactor’s Jam, Salesforce.com’s Chatter, and other enterprise social networking entrants take the same approach. Here, as in other areas of enterprise software being transformed by the “consumerization” wave, the goal is to help employees feel at home, not to make them learn yet another new user interface. But one big difference, as Sacks explains, is that each instance of Yammer is private to a specific company, meaning that only people with a corporate e-mail address can log on.

The core insight at the San Francisco-based startup—the first to bring a social networking product to businesses, back in 2008—is that the Facebook-style news feed is a great medium for collaboration inside a company, as long as what happens in the network stays in the network. For a boatload of reasons, from protecting confidential information to complying with regulatory requirements, “internal and external networks should be completely separate,” says Sacks, who got his start in business as chief operating officer at PayPal. “You can toggle between them, but content can’t bleed from one to the other. We think it’s very important to be clear about where content lives.”

Yammer has 200 employees and recently raised $17 million in a Series D venture round led by Chamath Palihapitiya, a former Facebooker with a new venture fund called the Social+Capital Partnership. Previous investors Charles River Ventures, Emergence Capital, and US Venture Partners also participated in the round, bringing Yammer’s total venture pot since its founding to $57 million. The company has had a big year—embarking on a major integration with financial management software provider NetSuite; introducing new applications for desktop PCs, iOS devices, and Android devices; landing big customers like Ford, Shell, and 7-Eleven; and extending its platform to work with applications from Microsoft and Salesforce.com.

So I thought it was about time to sit down with Sacks for the trademark Xconomy interview, delving into how the idea for Yammer evolved, why the company went with a freemium business model, and how Sacks plans to keep the company on top in the enterprise social networking business, which is an increasingly competitive one. You probably didn’t know that Yammer is a spinoff of Los Angeles-based genealogy site Geni, or that Sacks took a spin in Hollywood, financing and producing the 2005 satire Thank You for Smoking, starring Aaron Eckhart. But as I learned, there are many sides to Sacks, who’s both understated and as intense as you might expect of a PayPal alum; both self-effacing and prone to cutting remarks. For example, he says it would be easier for growing companies to find software engineering talent in Silicon Valley if “fewer stupid ideas were getting funded.” Here’s a trimmed-down version of our conversation.

Xconomy: You were at PayPal in the early days. Can you talk a little about your history as an entrepreneur before that, and the steps that led to Yammer?

David Sacks: The short answer is there was not very much history. I had been an undergraduate at Stanford and knew Peter Thiel. I was 27 when I joined PayPal as the chief operating officer, and I was 30 when we sold it to eBay. So it was not like I had a tremendous amount of experience.

Subsequently to PayPal, I created another company called Geni, and we spun Yammer out of that. Yammer was invented as a tool inside of Geni. We started using it to … Next Page »

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Wade Roush is a freelance science and technology journalist and the producer and host of the podcast Soonish. Follow @soonishpodcast

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