The National Inflation Association predicts that enterprise social networking will revolutionize the workplace beginning in 2012 and change forever the way the world gets work done. Over the past few years, social networks like Facebook and Twitter changed the lives of consumers and how they communicate with their friends and families. Facebook started out just for college students and now those college students are finally entering the workplace where they are demanding that their employers adopt enterprise social networking platforms.

Enterprise social networks are kind of like Facebook for the workplace, but without the socializing. Enterprise social networks are meant to result in employees working together better as a team and getting their work done more efficiently. After a business deploys their own enterprise social network, no longer are their employees limited by their job title. Employees can display on their profile pages all of their areas of expertise and when a co-worker needs help from somebody with a certain skill, they can easily search to find what co-workers have that skill. Employees can invite the co-workers of their choice to join a group to work on a specific project. Once they accept and join that group, they can instantly become familiar and knowledgeable about the project being worked on by reading a project description, viewing project milestones, and seeing what co-workers are involved and the exact work that each employee is contributing.

Facebook is expected to have in the third week of May what is rapidly becoming the most eagerly anticipated IPO in Wall Street history. There are already dozens of new articles being written about the Facebook IPO on a daily basis. The amount of media attention being paid to the Facebook IPO will only increase on a weekly basis up until Facebook finally begins trading. Facebook is expected to raise $10 billion and start trading with a market cap of $100 billion, which will be about 25 times Facebook’s 2011 revenues of approximately $4 billion.

Wall Street analysts will justify Facebook’s rich valuation of 25 times sales by saying they are growing revenues by over 100% each year. However, Facebook has already reached market penetration in the U.S. of about 50%, which is most likely near a peak. It is unlikely that Facebook will reach the same market penetration in European countries and it has been banned in China, which will severely limit their future user growth. NIA estimates that Facebook will probably only grow revenues by 20% to 40% annually for the next three years, with annual user growth of only 10% to 30%.

The enterprise social networking industry was only worth $600 million in 2011. However, most large U.S. corporations are now planning to deploy enterprise social networks within the next year or two. This industry is likely to grow 61% annually and become a $6.4 billion market by 2016.

While Facebook’s biggest growth is behind it and investors will likely overpay for shares of Facebook stock, the enterprise social networking industry is still in its infancy. NIA believes that the enterprise social networking companies with top-tier solutions will experience growth over the next four years that is similar to Facebook’s growth over the last four years.

In the world of consumer social networking, Facebook is the dominant company because everybody wants to be where their friends and family are. In the world of enterprise social networking, we believe there will be 5 to 10 leading social platform providers. We don’t expect any one enterprise social company to receive more than a 20% market share.

The leading company in the enterprise social networking industry today is Jive Software Inc. Jive went public in December of 2011 in one of the hottest IPOs of the year. Demand for Jive shares was off the charts. Not only did Jive start trading at $12 per share, which was above the $8 to $10 pricing range, but Jive sold 15% more shares to the public than they planned. This resulted in Jive raising $161.3 million or 38% more than the $117 million they planned to raise.

Jive closed January 17th at $14.65 per share and has 59.07 million shares outstanding, giving it a market cap of $865.32 million. Based on the cash and debt Jive had before its IPO and adding in the cash Jive raised in its IPO, Jive’s actual enterprise social networking platform and business is currently receiving a value of $664.33 million. Jive’s revenues in the trailing twelve months were only $69.44 million and Jive reported a huge net loss of $44.9 million.

Based on the valuation Jive is now receiving, it is obvious that revenues and profits don’t matter at this time when valuing companies that offer enterprise social networking platforms. For at least the next year or two, companies in this space will be valued based on the quality of their platform including its depth of functionality and ease of use, unique features of their platform that make it stand out from competing platforms, cash available for marketing and developing new unique features, experience of management, and customer growth.

There is clearly a lot of money on the sidelines looking to invest into this space. A private company in this space with a good quality platform Lithium Technologies just received a venture capital investment of $53.4 million, which will allow Lithium to compete directly with Jive. Lithium’s best strength is their powerful social media analytics engine they received when they acquired Scout Labs for approximately $25 million.

Microsoft is in this space with SharePoint 2010, but SharePoint was originally never intended to be used for enterprise social networking and therefore is lacking in terms of functionality and features that businesses crave. A private company NewsGator has developed a very good product for improving the usefulness of Microsoft SharePoint 2010 called Social Sites. It should be interesting to see if Microsoft is able to significantly improve SharePoint and if they will ever attempt to acquire NewsGator.

Another software giant IBM has developed a much better solution than Microsoft called IBM Connections. While Microsoft has a three year release schedule for SharePoint that will keep their product out of date, IBM intends to release new versions of IBM Connections on an annual basis. Jive has a major advantage over both IBM and Microsoft where they are constantly releasing new versions of their platform on a regular basis, including new integration with Microsoft Office that is a result of Jive’s recent buyout of OffiSync for approximately $30 million.

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