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Facebook-Style Enterprise Social Platforms Losing Clients and Investors



Investment analysts concur: simple social application functionalities – like the Friend Stream and Like Button – don’t suffice to do business in an easy and effective way. This opens a new window of opportunity for Witology.

Big bosses have no time to understand the intricacies of application functionalities. The bigger the boss, the less time he/she has. And the less time, the simpler and more understandable the application should be. Otherwise no one will buy it. The big bosses will hardly listen to lengthy explanations of what different functionalities are suitable for.

Consequently, it is the applications with the most simple and intuitive functionalities that gain widespread adoption – just because it is upper management that has the upper hand in budget allocation. This is true at least at the initial stage when new applications just enter the market, and whether a company buy a new application depends on whether the company’s management likes it.

Enterprisesocial software is still in its infancy state, going after the enterprise applications and B2B services market. That is why leaders of the new segment, such as Yammer, Jive, etc., prefer not to complicate their products with too many features, opting for Friend Sream, Like Button, User Profile, and Vote for Your Favorite Ideas tools. Consequently, what clients can have is a simple, understandable functionality that journalists have dubbed “Facebook for the workplace” (in Russian).

Big bosses like such simplicity. They understand that employees will communicate more and information will be more quickly disseminated across the company and it will be possible to identify enthusiasts whose ideas to improve the business will be as good as those of the top management. All is simple and clear without explanation.

Given that such platforms and services are inexpensive or even free sometimes, for example, the freemium model of Yammer, the heads of large companies cannot resist the temptation – simple, understandable and almost free!

Over the last two years the number of customers of leading social platform vendors has grown like a snowball, reaching millions and millions of end users. This has not escaped investment analysts’ notice, as well as investors’.

A year ago, Jive whose staff was 358 employees at that time reported approximately $30 million in debt and $70 million revenue and registered for IPO, turning out to have a market value of $888.9 million. That’s about 13 times its trailing 12-month sales. Investment analysts compared the ratio with Microsoft’s (3) and IBM’s (2.1) and all understood the seriousness of it. It was expected that SAP or Microsoft would soon buy Jive for more than a billion.

However, the deal with SAP never took place and Microsoft eventually bought Yammer, not Jive. The market value of Yammer was estimated at $1.2 billion at that. Note that Jive didn’t promise immediate profits but nevertheless increased yearly sales by 70%. Revenues didn’t even ‘bother’ Yammer that gave its platform for free use to four out of five customers. As a result, Yammer (with 250 employees) posted revenue of $23 million, the ratio of its market value to its previous 12-month sales reaching almost 50!
Investment analysts were very impressed by this fantastic figure. Equally impressive was Forrester Research that forecasted that the social enterprise application market would grow from $ 900 million in 2011 to $ 6.4 billion in 2016 (611%). This market began to be viewed as a “gold mine”. ‘Collaboration and improving communication has been something of a holy grail,’ said Ed Maguire, managing director and analyst at CLSA Asia-Pacific Markets.

In the meanwhile, the market value of Jive rose to almost a billion in August and people began to talk that SAP or Oracle would buy Jive for a billion or more, even though Jive was reportedly continuing to incur losses, according to the results of Q2. Walter Pritchard at Citi Investment Research downgraded Jive from “Buy” to “Neutral” in August and lowered his estimate of Jive shares from $ 30 to $ 21 at the end of the year.

But then the situation got suddenly worse. Analysts unexpectedly began to say that corporations were becoming aware of the limited capabilities of the Facebook-like social platforms they had implemented.
Here is what some corporate clients say about such platforms as Jive and Yammer: ‘We need applications that help companies do business in a more efficient and easier manner, not platforms for social communication for the sake of communication.’

“They want social technologies that become part of their work. Too often, enterprise social networks act as a separate silo where people interact for the sake of using a social media solution. That needs to change. We’ll see that change happen over the next year as more vendors recognize it’s more about making the job easier to do than a “like” button or the novelty of Twitter like activity stream”.

Finally, in October, Jive dropped to $13.17 per share, hovering below its post-IPO low – similar to Facebook. Jive shares are estimated at $16 at the end of the year – not $30 or even $21 as was predicted a few months ago and in August, respectively.

I cannot even imagine how much money Microsoft could have saved by taking a little pause before purchasing Yammer.

All in all, we may say that vendors have begun rethinking what corporate clients really want from social applications.

- Firstly, enterprise social platforms obviously cannot be confined to Facebook-style functionalities because otherwise it will be just social communication for the sake of communication.
- Secondly, social collaboration projects need project management (see new report “Social Projects Require Project Managers to Think Differently”).
- Thirdly, there is a need for project facilitation (Facilitating social interaction) (see new report “Magic Quadrant for Social Software in the Workplace”).
- Fourthly, there should be such functions as search for relevant knowledge and planning collaborative projects whose goals are to find solutions to concrete problems (Accessing relevant knowledge and expertise that can be used to formulate a plan of action when decisions need to be made). (See ibid.)

All this you can find in Witology platform. However, until recently such an intricate functional has deterred rather than attracted many corporate clients. Their bosses simply haven’t understood why they might need all those ‘bells and whistles’.

So, let us see whether their opinion will change. But it is nevertheless already clear that the old days when the “Facebook for the workplace” was considered the most attractive characteristic of corporate social platforms are gone.

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Sergey Karelov

Соучредитель и CTO Witology