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Yammer’s Business Model: Infiltration of Value

Posted in Entrepreneurship, Posts, Reviews, Social Media, Technology by

When I first heard that Yammer (the “twitter for business” startup) had won TechCrunch50, I had mixed feelings. On the one hand, I’ve been using Backpack’s Journal feature to do something similar with an agency that I do work with, and I immediately saw the value. It’s interesting to see what other developers or designers are up to. For a freelancer, Twitter itself is almost like working in an office, and I can see the value of doing something like a mini-twitter just within your organization.

On the other hand, it doesn’t seem that innovative or impressive from a technology standpoint, just a slightly modified take on a concept that’s been around for awhile.

But then I heard about Yammer’s business model. I’m sure this is a big part of why Yammer won, because it’s brilliant. Basically, users sign up to this thing using their corporate email address, which makes sense since they’re using it for work. It’s completely free for any employee to sign up, and they can do so without the knowledge or blessing of their employer. However, if the company wants to “claim their network” and have administrative control over the user account that their employees have, they have to pay $1 / month / account.

Here’s why this is brilliant: in a typical corporate environment, tools and services are imposed in a top-down fashion, and then HR spends tons of effort trying to get people to use them. I used to work at CNET, and we had this terrible internal productivity tracking tool that everyone was supposed to use. The interface was awful, the integration was terrible, and probably cost CNET a ton to use the service for thousands of employees. But it would have been worth it if it actually increased productivity by 1/10th of a percentage point, or allowed CNET to ferret out their most productive employees. But I doubt that it did, because the person using the system and person gaining value from the system were not the same person. Employees didn’t get much extra out of it, and largely saw it as what it was: more work so that management could keep an eye on them. All the value was to the organization, not the users.

Contrast that with Yammer. A couple people from CNET sign up, they want to see what their colleagues are doing at work, so they invite them. Some of those people sign up, invite more people, and so on. Pretty soon, hundreds of people at CNET are using Yammer to share what they’re working on, ask questions, etc. Then the organization finds out that there’s all this value locked up in Yammer, and they can pay a measly $12 / year for each employee to access that value. Think they’ll be willing to do so? You bet.

The problem with many enterprise tools is that the organization is the primary customer, and then they have to push their employees to use the tool, because the employees view it as just more work. But the brilliance of Yammer is that they’ve built a tool that infiltrates value into an organization, then charges the organization if they want to unlock that value. If you hit the users first and add value and then layer on features that the business wants, you’ve got an irresistible combination. Employees will sign up and use it on their own, without any prompting or cajoling from the organization, and the business will find that it needs to pay up to unlock all the value that employees are naturally creating because they want to. It’s a classic bottom-up strategy, and one that I’ve started to think about for some of my own entrepreneurial pursuits.

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