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

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the Internet industry is different from what it was 15 years ago. We have large incumbents, and that creates issues and constraints that entrepreneurs have to work around.

The good news is that the Internet is expanding and overrunning traditional institutions. As Marc Andreessen said, software is eating the world. That creates tremendous opportunities for entrepreneurs to go into new industries. I compared the Internet ecosystem to a forest. It’s not a young-growth forest anymore. There are some giant redwoods at the center. But the forest is expanding, so I say go to the outskirts, find some new markets to explore.

X: Who are the big redwoods that people should stay away from, and what areas are still on the outskirts?

DS: Maybe “stay away from” is too strong a term. Now that I am part of Microsoft, I don’t want to be saying to people, “Stay away from us.” If you’ve got a way to disrupt our business, go for it. But you don’t want your idea to be so obvious that it’s almost surely on the near-term product roadmap of one of these big companies, because they are going to do it in the next year, and they have enormous resources. So you have to come up with an idea that is non-obvious and is not on anyone’s near-term roadmap.

One of the things that bought us a couple of years was that everyone hated the idea of enterprise social networking. Most people thought it was crazy. We could barely get it funded. So if you want some degree of non-obviousness, you just go into a market that doesn’t have any other tech companies in it. I’ve pointed to Uber in taxicabs, and I’m an investor in Cherry, which is attacking the car wash industry. I love that, because there are no big tech companies playing in that space.

X: There’s a point of view that big waves of innovation only happen when you get a brand-new platform that people can build on top of. Yammer, for example, didn’t exactly build on top of Facebook, but Facebook did establish this category of social networking that you capitalized on. Apple and Google enabled something similar with iOS and Android. Do you think we’ll now have to wait for another fundamental platform advance before there can be another wave of green-field innovation?

DS: No. What I think is creating movement is the fact that the Internet is going into more spaces. Mobile is huge right now because you can now carry computer power wherever you go. You’ve got this programmable device that can be a control panel for any application, and it’s all touch-enabled. That unlocks the potential for a vast array of new applications.

I do think that if you look at what’s happening with Zynga on Facebook, you definitely want to exploit these platforms to get distribution, but you need to get escape velocity so you can get off them eventually. You don’t want to be completely dependent, if you want to create a viable company. We were inspired by what Facebook and Twitter did, but we never had any dependence on them. Ideally, you have some soft of network effect across devices or across platforms so that you are not beholden to one platform.

X: I want to ask you a couple of questions that aren’t directly related to Yammer, because I know you’re likely to have opinions. One is something we talked about last time—secondary markets and vested startup employees cashing in their shares before an IPO. Among startup CEOs, there was a lot of uncertainty and concern over that subject a year or two ago, but now we’ve had the Facebook IPO and it seems that there’s less urgency. Do you think that issue is settling down?

DS: I think the whole process is becoming more standardized. It used to be that individuals and companies were just kind of hacking it. The whole secondary market strategy started with these situations where individuals would go off and sell their shares. Now companies are taking control of the process. One company bylaw that is becoming more and more standard is that individuals are not allowed to transfer their shares without the approval of the company. So I think more and more of these secondary sales are going to require the consent of the company, and therefore companies will control when it takes place—probably at some sort of event. But I think secondary trading will continue, to the extent that the IPO market has faltered and companies feel like they need to provide liquidity. But the Wild West era is being reined in.

X: How important is a college education? Your college friend and PayPal colleague Peter Thiel is a vocal critic of universities, and has been putting his money where his mouth is with the Thiel Fellowships, which allow students under 20 to bypass universities and pursue their passions or their businesses.

DS: I guess it kind of depends on what you do there. If you spend five years partying, it’s probably not very valuable and the government should probably not have to pay for that. On the other hand, it’s possible that if you study computer science and become a programmer, that’s really valuable.

Since I met Peter at college, and that ultimately led to us doing PayPal, I would say that for that reason alone it was probably a valuable thing to do. But Peter is not saying that everybody should [skip college]. There has been this hysterical reaction to the idea of 20 kids, out of millions, dropping out and doing the Thiel Fellowships.

I do think that the culture is becoming very credential-oriented, and that people now value a college education just as a credential, without actually looking beyond it to see if it truly has value for each person. It is the case that college graduates earn more. But it’s also the case that the smartest, most driven people tend to go to college, so you can’t say there is causation there. All you can say is that college didn’t ruin these people entirely.

X: When you’re interviewing people at Yammer, do you care if they have a college degree on their resume?

DS: Not really. My CTO Adam Pisoni dropped out of high school—he’s not even a college dropout. So when it comes to computer programmers, I could care less what their credentials are. The question is how good are you, and on-the-job training is much more valuable than learning in a classroom. I don’t think anyone in a startup really cares about your credentials.

X: How bad is the talent crunch right now in Silicon Valley? Are you finding the people you need?

DS: I think we are finding enough people to keep growing, but it’s a very serious issue. The biggest constraint right now on the technology industry is a lack of software programmers. We need way more.

X: Do you see any encouraging signs in that area?

DS: Somebody told me the other day that computer science is now the most popular major at Stanford. That is very encouraging. When I was there in the early ‘90s, I think it was political science or something equally useless. I think people are realizing that this is the industry of the future. When I was in school, the movie Wall Street was the big cultural touchstone and everybody wanted to be Gordon Gekko. Now it’s The Social Network, and everybody wants to be Mark Zuckerberg. There are some good things happening culturally, in terms of people waking up to the world of entrepreneurialism. When I graduated, I didn’t even know it was an option, but it’s now something college students are very aware of. So if we have more smart kids graduating from college or dropping out of college with the mindset that they are going to go into something entrepreneurial, rather than become Wall Street bankers, that can only be a good thing.

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Wade Roush is the producer and host of the podcast Soonish and a contributing editor at Xconomy. Follow @soonishpodcast

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