I mentioned that I thought Yammer had a flawed business model, and I’ve been planning on expanding on that for awhile now. I recently revisited the topic with Corey and Dan in light of a NY Times article suggesting that Twitter had popularity and Yammer had a business model.

While I find Yammer very useful for our communications at Notches, it’s not fair to say that "they have a business model and Twitter doesn’t". This juxtaposition of “popularity vs. business model” is just improperly framed - Twitter could very easily offer the same private group functionality.

The problem, I think, is confusing revenue with a business model. Bringing in revenue doesn’t mean they’ve figured out how to best monetize communications. I would venture to guess that their cost per user is near or higher than $1 per month with SMS fees and infrastructure.

There is no doubt that showing some revenue early on is a great thing for a startup, but to be really relevant it needs to be “core” revenue that can scale accordingly. Personally, I think Yammer is going to have a hard time getting the growth they need to turn $4,000 per month today to even $40,000 per month in the future.

What’s to stop Twitter completely undermining Yammer by offering private group functionality for free (or the same fee)?

Twitter is interesting not because it’s collecting $1 from every user, but because of the new models and opportunities that can emerge from it long term. My guess is that Twitter realized that is looking at business models that can scale better and hit the growth that their investors are looking for.

(Then again, "growth" on $0 of revenue is, well, you know).

This is the third in a series of posts inspired by Yammer and issues in the business that I think underscore broader problems in our approach to building startups. See part one about innovation and part two about building for the enterprise.

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