How Yammer Turned Being Small into a Big Competitive Advantage

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Who says being a small business doesn’t have its own advantages? All month long we’ll be publishing a series of stories of how the little guy prevailed using its size as a competitive advantage — and so can you.

How Yammer turned being a small business into a big competitive advantage

When Microsoft announced in July that it would acquire red-hot business networking platform Yammer for $1.2 billion in cash, industry insiders theorized that the tech giant’s purchase had everything to do with an attempt to finally get into the social networking game.

Why Didn’t Microsoft Build its Own Solution?

Microsoft could have chosen to build its own enterprise social networking application to squash Yammer’s uprising. With $1.2 billion in cash, the behemoth could have very easily hired the developers it needed to build a new product. And it could have spent far more on sales and marketing than Yammer could have possibly afforded.

The reason the company didn’t do that is pretty simple, however. Yammer had built a product and developed a user base that Microsoft – and other software giants, for that matter – couldn’t easily replicate (even with a seemingly limitless pile of cash). And it had done it by leveraging one critical competitive advantage of being smaller and nimbler: every member of Yammer’s team was closer to the customer. Thanks to that, they had access to critical information that Microsoft couldn’t – or was choosing not to – tap into.

A Small Business Competitive Advantage: Information (Not Data) Is Power

Which melts more slowly, a small snowball or a large one? All other things being equal, the larger snowball will melt more slowly because its outer layer of snow insulates the snow inside. By contrast, more of the snow in the small snowball is exposed to the outside world, and it therefore reacts to its environment faster.

Big companies have the same basic geometry as a large snowball. Most of them have a much harder time getting a true feel for their outside world (i.e., their customers, market, and competition) than small companies do. This has nothing to do with the quality of the people who work there or the company itself, it’s just a natural disadvantage that large companies have relative to small ones.

By contrast, smaller companies and their fewer management layers often interact directly with prospective customers as they develop their technology. As a result, they can generally access information from the outside world (customers, non-customers, competitors, suppliers, etc.) much faster than their Goliath competitors, and use that information to influence virtually all of their product development, sales, marketing, and customer service strategies.

How Yammer Used its Information Advantage to Build Something Microsoft Couldn’t

By the time Microsoft acquired Yammer, the enterprise social networking application had five million corporate users that included employees from much of the Fortune 500. More importantly, VentureBeat’s Jolie O’Dell wrote soon after the acquisition was announced, those users aligned perfectly with Microsoft’s sweet spot.

By understanding what its large competitors would want to achieve from an enterprise social networking application and maximizing their direct access to key information generated from the outside world, Yammer was able to:

  • Focus on innovations that conflicted with large competitors’ model/decision-making process
  • Develop a product that would take larger competitors far too long to build, market, and incorporate into their corporate strategy
  • Grow a user base that aligned with larger competitors’ target customers and maintain user loyalty through rapid response to customer feedback, insight, and pain points

Essentially, Yammer had built exactly what Microsoft – and other large companies hoping to get into the enterprise social networking market – wanted. And they had done it in such an efficient way that no bigger business could replicate that success in a time and cost-effective manner.

5 Ways You Can Mimic Yammer’s Information Advantage

In a rapidly expanding digital world, it’s tempting to gather exceedingly large amounts of data simply for the sake of collecting and having access to it. However, hoarding volumes of data won’t do you much good if it’s not actually useful. In fact, it may just overwhelm your team.

Instead, the key to maximizing your information-gathering efforts is to uncover truly valuable information — not data — that is contextually relevant and beneficial. Ultimately, that can be achieved by performing one or all of these activities:

  1. Expose all of your employees to your customers. If your employees understand your customers’ needs, how they interact with your product, the best approaches to helping them resolve issues, and the marketing messages that will best resonate with them, you will have a natural advantage over larger competitors.
  2. Study your customer service interactions. Tracking trouble tickets is one of the best ways to determine what your customers are doing with your product and how you are servicing them. If you have customer service reps, listen to the phone calls, ask them about their interactions, give them a few questions to ask your customers, and then gather the feedback.
  3. Ask your customers. Once customers have purchased your product, most will be willing to give you detailed feedback because they want you to continue getting better. User conferences, advisory boards, and surveys are great ways to get information. Another approach is to sit down with customers periodically to really get to know them.
  4. Find out what your competitors are doing. Make a list of things you would like to know about your competitors and then get creative about how you are going to (legally and ethically) get the information. Study their websites, visit their booths at conferences, and use resources such as Hitwise, Compete, and Alexa.
  5. Share what you’ve learned. Work this knowledge into your management meetings, company wiki, e-mail, management reports, employee feedback systems, and all other vehicles you have to manage/monitor progress and communicate internally.
For more on how your company can leverage its small business competitive advantage download OpenView’s free eBook:

Slaying Goliath

Slaying Goliath: How Small Companies Can Compete Against Their Large Competitors

This list is intended to generate ideas, not mandate all of the things you need to do right away. If you try to do too much, you will water down your efforts and actually get less useful information.

Remember it is information – not data – that you are looking for, and you need to spend the vast majority of your time building a great product and then selling and servicing it. Start with the easy steps, and increase the activities as you grow.

Naturally, some larger companies will execute these tactics. But they still have the natural disadvantage of being the large snowball. Your small company has a real opportunity to make the most of its natural advantages to give itself a winning edge. Just ask Yammer.

Check back in throughout the month for more inspiring underdog stories and examples of how your small company can come out on top in our “Slaying Goliath” series.

We want to hear from you!

What are some other great examples of small businesses utilizing their size as a competitive advantage to take on the big guys?

 

  • Now that Yammer has been consumed by a much larger company, as is usually the case, the laser like focus on the customer will be subsumed by the larger corporate goals of Microsoft. Therefore all sorts of great new competitive opportunities are opened up every time a company is acquired. When Hotmail was acquired by MS, all sorts of great new opportunities were created which then lead to Gmail. Who uses Hotmail these days?

    • Scott Maxwell

      Totally agree Dan! That is the great thing about start-ups…the larger ones get acquired and generally slow down their innovation leaving room for new start-ups! Interestingly, while Hotmail is no longer hot, I believe that it still has a lot of users. I continue to get e-mail from people that use Hotmail.
      Scott

  • Jimmy Hendricks

    This is an excellent article. We are seeing a similar trend with e-commerce companies that work with local TV, Radio, and Newspaper companies. We had 20 competitors a year ago, many venture backed, etc. We raised a seed round and built an effective, automated product. Fast forward two years and we have two competitors left and we are effectively gaining market share every day. The 5 ways you can mimic Yammer are great tips we passed to our customer support team.

    • Scott Maxwell

      Thanks Jimmy. It is great to hear about your success and I am glad you found the ideas worth sharing!
      Scott

  • StarBo

    I think Bitrix24.com beating Yammer is just as interesting how Yammer beat Microsoft

    • I think all competitions for customers are interesting. Can you expand on how these guys are “beating Yammer”?