Aug 25, 2011 (12:08 PM EDT)
What Jive's IPO Says About Social Software Market
Read the Original Article at InformationWeek
Jive has been losing money for the past five years and doesn't expect to turn a profit for the foreseeable future. On the other hand, Jive's willingness to plow the money it raises into product development could be a good and necessary thing, given that it is in competition with large companies like IBM and Cisco. As of the end of June, Jive had 635 enterprise customers including HP, SAP, T-Mobile, and UBS. Revenue for the first half of the year was $28.6 million, up 79% from the same period in 2010. Jive sunk $15.8 million into research and development during the first half of the year, or about double what it invested in the first half of 2010. Recent product improvements have included the Jive 5 platform upgrade and the introduction of the Jive Apps Market.
I'm not going to try to tell you whether Jive will be a good investment, but if you are trying to decide whether this is a company you want to bet on as a vendor of social software, its S-1 Registration Statement is worth a close read.
Part of the nature of the document is that Jive is compelled to air some dirty laundry. Some of the gory details emerge in the opening paragraph of the "Risks" section, headlined "We have a history of cumulative losses and we do not expect to be profitable for the foreseeable future.
"We have incurred losses in each of the last five years, including a net loss of $27.6 million in 2010 and an additional net loss of $30.6 million in the six months ended June 30, 2011," Jive reported. "At June 30, 2011, we had an accumulated deficit of $84.5 million. As we continue to invest in infrastructure, development of our solutions and sales and marketing, our operating expenses will increase significantly. Additionally, to accommodate future growth, we are in the process of transitioning our customer data centers from a third-party service provider to a co-located facility managed by our internal network operations team. This transition will require significant upfront capital expenditures and these costs and expenses will be incurred before we realize any associated incremental billings or revenues. As a result, our losses in future periods may be significantly greater than the losses we would incur if we developed our business more slowly."
As far as I know, this is the first time Jive has disclosed that it is working to bring application hosting in-house for those customers that chose to get access to the software as a cloud service, rather than as software to be installed inside the firewall. Jive currently relies on SunGard Availability Services to provide application hosting. I asked for clarification on how far along they are with this transition and was told by email that they could say nothing beyond what was in the S-1.
Jive also talks about the risks it takes on when it hosts software on behalf of its customers. The company suffered a major outage in January in which at least 500 customers lost access to hosted wikis, and Jive had to give them service credits to make up for it. In the first six months of this year, 59% of Jive's revenues came from public cloud deployments, according to the S-1.
Under the "quiet period" restrictions in Securities and Exchange Commission rules, Jive is limited in what it can say following an IPO filing, but by email I was told, "every registration statement actually lists risks that face the filing company. We are no different. Many technology companies include the concept of profitability as a risk. You can see in LinkedIn's filing as an example."
LinkedIn did say in its own IPO registration statement that it did not expect to be profitable in 2011, at least in terms of generally accepted accounting principles. However, LinkedIn has at least flirted with profitability.
A VentureBeat account of the IPO quoted Box.net CEO Aaron Levie and Yammer CEO David Sacks saying predictably enthusiastic things about how Jive's IPO validates the market for social software. However, since Yammer is a more direct rival, Sacks couldn't resist sticking in the shiv: "Jive is a 10-plus-year-old company, it has a fairly traditional distribution model behind the firewall ... they need this IPO to happen because they're losing so much money."
Sacks has a right to be provocative (and he's good at it), but Jive also has a lot going for it. Jive CEO Tony Zingale, who has led the company since February 2010, is a former CEO of Mercury Interactive (from before it sold to HP) and has spent the last year and a half bulking up the company's management team and otherwise getting the company ready for an IPO. Jive is the only company that shows up as a leader in three different Gartner Magic Quadrant rankings for different segments of the social software market: Social Software for the Workplace, Social Software for External Communities, and Social CRM.
Forrester analyst Rob Koplowitz, the author of that report, said it makes sense to him that Jive might have to operate at a loss while it tries to consolidate its position. "Do they have to invest heavily to be relevant in a market that also includes IBM and Microsoft? Yes, I do believe that requires a significant investment," he said. "They have a very aggressive growth vision, and they're closing really big deals." As for Yammer's Sacks, Koplowitz said, "I think you have to take David's comments with a grain of salt."
For one thing, making it sound like Jive has been struggling along at a loss for 10 years is misleading, given that the company reinvented itself in 2007, when it took its first venture capital and began expanding its product line, Koplowitz said. Before that, "they were a small, conservative business out of Portland involved in a related but substantially different business."
Koplowitz did not include Yammer or some other social software products such as Saleforce.com's Chatter in his report, as a matter of market definition--he was looking at products with a broad range of capabilities, as opposed to those he considered more narrowly focused on microblogging.
Sacks also implied that Jive is traditional enterprise software, compared with Yammer, which is purely a software as a service product. That's partly true, Koplowitz said. Even though Jive talks about increasing "public cloud" deployments, for the most part these are based on hosting dedicated servers on behalf of enterprise customers, rather than signing them up for a multitenant SaaS service hosted on shared servers, he said. Jive does also provide some of its newer products and features, such as social analytics as true cloud services, Koplowitz said.
Jive's application hosting approach might be valued by some enterprises uncomfortable with the idea of comingling corporate data of any sort with data from other companies, Koplowitz said. Other security conscious institutions like banks appreciate that Jive gives them the option of deploying inside the firewall, "which, in a highly regulated industry with a diligent security team, might be the only way you'd be allowed to deploy something like this," he said.
Yet the pure SaaS deployment of Yammer also confers benefits, so Sacks does have a point, Koplowitz said. "With Yammer, he can roll new capabilities out to his customers so fast because he delivers one environment, he owns it, he controls it--that's pretty cool."
Gartner analyst Adam Sarner, who follows the social CRM part of Jive's business, said the company has "placed a lot of bets, I think good bets, and the IPO is going to fund some of this stuff. They have momentum over many other vendors in the market, who are well behind what jive has accomplished so far."
Most of the vendors he is following are not profitable, "in fact most are under $1 million and unprofitable--or if they are profitable, they are just barely profitable," Sarner said. The Jive IPO is a recognition that this market has real potential, but it's just getting started, and the same is true of Jive's business, he said. "Ten years or not, they're still at an early stage of this."