Yammer, Growing Fast, Raises Major VC Round and Delays IPO

Competition in the $10.3 billion enterprise social networking market is intensifying as leading players raise funds to fuel growth. At the end of 2011, Jive Software successfully tested IPO waters. But if the market was waiting for another player, Yammer, to go public, it may be waiting for a long time.

Yammer’s Financials
Former PayPal COO David Sacks founded Yammer in 2008. Yammer’s employee social networking tool lets employees discuss ideas, post topics, seek clarification, share information, and access past conversations for future reference. In many ways, it is the equivalent of Facebook for organizations as it has features similar to “Like”, threaded conversations, and mobile connectivity. Today, Yammer is among the fastest-growing enterprise software companies by reporting more than three million users in just three years. Yammer boasts of a clientele of more than 200,000 enterprises worldwide, including 85% of the Fortune 500.

Yammer operates on a freemium model and offers three pricing options to customers. The basic option is available free to all users and comes with a mobile connectivity feature. Organizations can upgrade to a Business model at a cost of $5 per user per month; this model gives them basic admin control to the tool, support services, and integration with enterprise applications. Additional premium controls are available through the Enterprise option of the tool, for which pricing is not disclosed. Nearly 20% of Yammer’s current users switch from the basic free model to either a business or the enterprise option, known as paid seats.

Yammer has not made their financials known publicly; however, they have published some of their operating metrics, specifying that revenues tripled in 2011. As of December 2011, Yammer’s corporate use base grew 2.5 times over the year to 4 million users. During the same period, paid seats grew from 200,000 to 800,000.

To date, Yammer has received more than $142 million in venture funding from investors, including Charles River Ventures, Emergence Capital Partners, Goldcrest Investments, Ron Conway, Keith Rabois, U.S. Venture Partners, The Social+Capital Partnership, and Chamath Palihapitiya. Last month, Yammer raised $85 million in funding from Draper Fisher Jurvetson, Meritech Capital Partners, Khosla Ventures, Capricorn Venture Partners, Max Levchin, CrunchFund, and Ronnie Lott, pegging their valuation at $500 million-$600 million. This latest round of funding has laid to rest market speculation of an upcoming IPO for Yammer. Analysts now believe that with this round of funding, Yammer has delayed their IPO plans for some time.

Yammer’s SAP Integration
Yammer is known to focus extensively on integrating enterprise tools with their own service. Last month, they announced the ability to integrate Yammer with the central component of SAP’s enterprise resource planning software. Using a plug-in called Yammer SAP Connector, employees of the organization will now be able to see ticker updates on any action taken within SAP suites, including HR, ERP and CRM, relevant to their profile. The tool was developed in partnership with a certified SAP developer, Freeboarders.

Yammer’s Expansion Plans
In addition, Yammer plans to invest the newly acquired funds in marketing campaigns and growing their organization size. They are planning a launch of a global marketing campaign that would include front-page ads in leading print dailies like The Wall Street Journal and online advertising across the U.S. and Europe. They are also working on launching native desktop clients for Windows and OS X and looking for acquisitions. As I suggested for Jive, I think Yammer too should be looking at either partnering with or acquiring innovative companies such as CrowdEngineering to offer services like crowd-sourced customer support to large enterprise customers.

As part of their workforce expansion plans, Yammer is scouting for talent. Last week, they announced signing bonuses of $25,000 to any Yahoo employee who joins Yammer within the next two months. Last year, Yammer more than tripled their headcount from 80 to over 250. For now, the company seems to be taking the right steps, and given the market potential, are looking at a bright future.