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Jive Software (JIVE)

March 12, 2013 6:00 am ET

Executives

Bryan J. Leblanc - Chief Financial Officer and Principal Accounting Officer

Analysts

Brent Thill - UBS Investment Bank, Research Division

Brent Thill - UBS Investment Bank, Research Division

Bryan and I have known each other for a long time. Bryan Leblanc is the CFO of Jive. He has held multiple CFO roles prior to his role at Jive. Jive is the leader in enterprise social business. I effectively call them the SAP at the high-end of the market for social. They're competing with a lot of other smaller vendors that are trying to emulate Jive's success. I think Bryan will walk through why they have been very successful in their market. They actually power UBS, our social strategy internally, and if you have a chance to talk to our CTO, that deployment continues to build throughout our enterprise.

So with that, Bryan's going to spend about 10 minutes going through the story, and then we'll go to Q&A.

Bryan J. Leblanc

Yes. We've adapted this presentation from a half an hour presentation so bear with me, and we'll try to make it as brief as we can. But for those people that don't know much about Jive, we want to make sure that we at least level set who we are and what we do, and then we'll leave plenty of time for Q&A, if that's okay with everybody.

So let's just skip through to the first slide here. We think it's a massive market. And the reason we think it's a massive market is because work has not changed. The way that you get your work done has not changed in the enterprise in the last 30 years, but for transaction processing back-end systems. If you think about, when you come to work, you're sending memos, like you did in the '50s, you're sending electronic e-mail like you did in the 80's and you're collaborating with people on documents like you did for the last 2 decades. So there's really been no movement forward in the way that you get your work done and we think that there's a big disruptive potential for Jive. We are the clear leader, as Brent mentioned. We've got proven results more than anyone else, over 800 customers and these are blue-chip customers. Customers that you'd recognize, like SAP and Volkswagen and Deustche Telecom and Audi and Bupa here in the U.K. So people that are large companies, that are betting their communication backbone and how they get work done inside their enterprise on what Jive does. We've got a high-growth ratable revenue model. Everything we do is ratable. We've got a nice subscription renewal base and all of the flavors that you come to expect from a SaaS company. And we've got a team that's done this before. As Brent mentioned, he and I worked together for a while. I've done a lot of software companies over the last 25 years. Tony Zingale, our CEO, is extremely experienced in building companies, both large and small. And you go across the executive team, we've got a number of people, some from Mercury Interactive, others from Apple and Cisco and Intel where we've got lots of deep industry experience.

So what are some of the highlights that we just want to jump right into before we get into the -- what Jive does. Best in class growth in Q4 and 2012, billings growth of 44% and revenue growth as well in Q4 and a little bit higher than that for the full year 2012. So very healthy growth as you'd expect in a disruptive space. A record number of large deals in the fourth quarter. Q4 included our largest ACB [ph] deal that we've done to date and in Q3 actually, was a quarter where we had a number of large customers as well. Strong customer growth on the new side, over 90 new customers. That's net new customers in the second half of the year as compared to a little over 30 in the first half. So very nice start traction in terms of getting new customers to come to Jive. And once we've got them, it's a land and expand strategy. We've got a very deep product portfolio. Jive 6, which is the current release, which will now be Jive 7 as we roll into this year, is now being released on a quarterly basis in the cloud. So every 90 days, you're picking up new features in that cloud, that momentum of getting new features in and getting them tested is pushing the technology envelope for the space. We bought 2 companies in Q4, Producteev and Meetings.io. Producteev is a social task management tool like Asana where you can assign tasks and then bring them into the workforce. We think that that's a very interesting way to combine with collaboration. And Meetings.io is going to help us with 2-way video communication. Think about the concept of Google hangouts but inside a business.

And we've got some great go-to market leverage. We just signed a joint agreement with PricewaterhouseCoopers, in the very first part here of Q1. That's on the back of an extremely successful deployment that they've had. They've got over 115,000 people around the world now using Jive to help their go-to market. They do custom proposal presentation collaboration inside of Jive. And it's cut the time that it takes to get those presentations done by 50%, so a big improvement in productivity. And we've also announced that partnership with Box as well, where we're deeply integrating with Box and doing joint customer calls between Box and Jive.

So just to give you a sense of what Jive is on one Slide, and this is busy, but Jive at its heart is a secure collaboration network. You can capture and store knowledge. You can share that around the organization, communicate across geographies and distances as well as functions. It's got an activity stream. It's hard to see here, the light is a little washed out on the slide. But imagine an activity stream like you would get from another social network but secure and designed for the enterprise. You can follow people, you can like content, you can co-collaborate on content, all of that set to be done inside of Jive. You can also recommend groups and people. Jive will serve information to you based on algorithms. You can use it to do smart decision-making and you can connect from anywhere. You can do this from your Microsoft Office desktop, you can do this from e-mail and Outlook and you can do this from any mobile device. We've got a native iPad app, we've got a native iPhone app and we have HTML5 enabled, so that you can actually use it on any connected device. And if you look at the interface here, you can see it's very modern, feels very much like a Web 2.0 cloud offering.

What we typically see in the enterprise is there's 5 big areas that we get traction from. Deal management and sales enablement certainly are 2 big ones. We talked about PricewaterhouseCoopers, they fit inside that example. We also help people with marketing campaigns and you can see here, we can get the number of deals that you're doing up. We can take down the time it takes to get a deal done or the time it takes to ramp a sales rep. We can take down the time it takes to develop a campaign or we can get more effective campaigns. We help reduce the cost of customer service. You could see here, call avoidance is a big reason people use us for external communities. If you think about McAfee, for example, is an external community that uses Jive. They've got a 90%-plus call deflection rate, so people come in to the website to ask questions versus calling their call center and that's hard dollars that these guys save. As well as, across the entire organization, aligning yourself or getting your engineering folks working better together to get things like product development done faster. These are all reasons that people buy Jive, and back to having 800 customers who have done this for the better part of 10 years, we've got lots of examples of how this works. And we've had a big 3 consulting firm in that I can't name, but if I could name them you'd recognize them and they've done a lot of work in the space, helping people understand how social adds business value and specifically, for Jive, how our customers get business value out of Jive and they've developed a lot of these stats from that work.

This is just a quick logo list of the customers that we've got. And you can see here, ones that you would absolutely recognize. Bupa is on here, we talked about Bupa. We've got Pearson and Saint-Gobain. And over on the right here, we've got Juniper networks, McAfee, I've talked about, Network Appliance, EMC. So UBS, obviously, here at the conference. UBS is a customer of ours. And we've got a very deep customer bench across all of these verticals: financial, telecom, healthcare and retail. Audi here in Germany, we've talked about that. We're also in with Starbucks and Mattel. Every one of these companies has got a significant deployment of Jive, either helping their employees, collaborate better together, or helping them get in touch with their partners or their external constituents.

And just to finish up on the financial highlights, we talked about strong revenue and billings growth, up 44% in Q4. We have a completely ratable revenue model with $117 million of deferred revenue on the balance sheet at 12/31. That obviously gives us nice visibility rolling into the quarter. We've got 90%-plus revenue visibility rolling into a new quarter. We've got strong renewable rates in up sell, 90%-plus on base dollars and over 110% with up sells. So the model is a sticky model once you get Jive inside your business and, obviously, you're using it to get real work done. It's got a very sticky component to it.

We have been investing for growth. We've invested very heavily on our product development and sales organizations in the last several quarters and we think that puts us in a nice position here for 2013 to be able to capitalize on what we think is a big growth opportunity in the market. We have almost 600 employees around the world and a substantial presence here in Europe as that we're building out. And we've done some very nice things with the model, even in 2012, as we ended the year, we were profitable from an operating -- cash flow from operations standpoint for the whole year and we were just slightly negative on free cash flow. We've put guidance out for this year that we're going to be positive to slightly more positive on free cash flow, so break even to plus $3 million, I believe, on free cash flow. So we're starting to get some leverage out of the model. And we think there's a lot more obviously, over time, as we start to scale up and grow Jive.

And if I did my job right, we'll end on the same investment highlights that we started with and, hopefully, that fits right inside our 10-minute window. And I'll turn it over to Brent, we can do some Q&A.

Question-and-Answer Session

Brent Thill - UBS Investment Bank, Research Division

One of the questions I get from our clients is just the tipping point of social and where you think we're at? You had -- you've dominated the high end of the market with some of the logos that you mentioned. You have salesforce.com, preaching this at every conference, which is obviously a nice thing to have as a tailwind to your marketing having a much deeper solution. And then Microsoft buying Yammer, I mean, there's kind of 3 behemoths, if you will, you guys, as a leader, but when you look at this kind of tipping over, where are we at from your perspective and...

Bryan J. Leblanc

So I think 2012 was the year that we could say we are firmly through the early adopters. And I think you've pointed to some things that we've watched in the industry that we think are positive indicators. All the competition that you see, everybody trying to imitate the social -- or sort of latched on to the social moniker, which you've seen now across the entire software industry. I don't think there's a single software company that doesn't have a social offering of some type. I think you're starting to see the SIs build practices around this. PwC, obviously, is a good example of this. But I think there are others as well. We've got a relationship with Accenture that's been very strong as well. And I think as you start to roll all of those things together, those are the points that you're looking for. We obviously think 2013 is the year where all of that comes together in a way that helps the industry kind of form up. McKinsey doing their work, we talked about that social study that they did over the summer, the social enterprise that, because you talked about a ton of business value that can be garnered from people that are deploying social technologies. I think those are all good evidence points. I think we need to see them play out now, but we feel very confident that the market has helped us come together, that wave of mainstream buyers. And remember, mainstream buyers only buy because there's business value. They're not going to buy because social is cool or social is the new thing. I think the early adopters were the ones that were connecting without saying, Hey, social is such as disruptive force in the consumer world, we should bring it in to our enterprise. UBS was a good example of an early adopter that actually figured that out. But I think the large mainstream folks are just now getting to the point where they understand that the business value that you can get from these technologies is really what's going to drive them. And I think it's, like you said, I think it's early, but we're seeing the signs, the early signs that will lead you to believe that the market's tipping.

Brent Thill - UBS Investment Bank, Research Division

There's always a debate of is it a nice to have or is it a must-have? And it seems like the stories that we've heard when we go to the user conferences, you listen to the people who are behind this and how enthusiastic they are. Once they're on it, they can't get off of it. But it's getting them on. It's getting the whole company moving. And can you just walk through this debate of, could I just do this on e-mail, could I just do this on the phone versus...

Bryan J. Leblanc

Well, and I think people have tried obviously to just do it in x, y, z, e-mail or portal technology. So there's been lots and lots of attempts at getting this done. I think when we walk into a customer, what we say is, "Look, let's talk about your pain points. Let's talk about where things are hard". I think when you get to that conversation, nothing is nice to have. Right? You have to have sales reps ramping. And I think that the pressure on organizations today, especially given the fact that not all of them had been able to grow their organizations the way they want to, but the demands for them for them to be growing don't cease because of that disconnect. And because all of the software that's been put kind of into service inside these companies has been designed to increase operational efficiency and hasn't gotten out the 70% of the workforce. Remember, the knowledge workers that we touch and optimize are 70% of the cost structure of most of these global 1,000 companies. So the vast majority of people that are on the payroll and creating the expense for these guys are the ones that have had the least amount of automation applied to them. And I think, when you can change the conversation from social for social's sake, which I agree with you, would be a nice to have, to let's talk about the business problems that you've got and how those business problems are solved by something like Jive. And you open their eyes up to the fact that they haven't actually gotten at this level of productivity inside their enterprise, then I think you're deeper down the road towards I have to have. And back to your point, when people actually deploy this technology in pilot form, or as they start to roll it out across their enterprises, they realize just how mission-critical it is and then it's a have to have. And I think that's the -- that's the thing we want to wire up for our customers, is helping them understand that business value so that they don't have to wonder whether this is a nice to have or a have to have.

Brent Thill - UBS Investment Bank, Research Division

You chilled some of the critics on the customer count, including myself. I think we were all fairly critical of -- that the customer count, new customer count, wasn't building as quickly. And now when you talked about 90 in the second half, up from 30. You're starting to see that momentum. You've also added, Jay Larson, who many of us watched at SuccessFactors and what the success he brought to that company. If you can just walk through what you're seeing from a new customer adoption going forward? You mentioned the 90 in the second half, kind of the momentum that you're seeing in your pipeline around...

Bryan J. Leblanc

So I guess it's important to note that we don't manage the company for a particular customer count outcome. I think that's a derivative of the work that we're doing. We were pleased obviously that the second half had more net customers in it, and we think that was important. And I think that, you're right, to highlight the arrival of Jay, for example, is one of the things that we're doing to help up level our selling activities. I wouldn't say, exclusively, that outcome is because Jay's here. I think a lot of it is because we've been focused on growing that customer base over a long period of time. We have a land and expand strategy, so we have a significant amount of our business that comes from up selling customers and we think that getting the first right use case inside of our customer is one of the most important things that we can do to help ensure that we wind up with good up sell and leverage out of that customer base over the long term. But certainly, we feel very good about our go-to market efforts. We feel very good about what Jay's brought to the party, which is a focus on how to sell at the C level, how to crack the code on the business value, that play that we've run with the large global consulting firm that I can't mention, those are things that are all in Jay's playbook, as well as international expansion, and some of the things that -- I don't know if you saw in the press last week, Jay was in Europe and Asia. Jay was actually out in Australia and Singapore, starting to get the word out, we're trying to get some traction and momentum in the Asia region. All of those things are designed to increase the velocity at which we're going after the market. And I think that customer count, as a specific metric, is a derivative of that. And we certainly feel good about, like I said, where it came out in the second half of the year and certainly, it's our intent to continue to grow Jive as a business and a franchise, which means attracting new customers. But I want to make sure people are focused on not only the new customer count, because I think that could be a bouncy one. As we're growing Jive, we're not focused uniquely on just that number, but we're focused on getting all of those customers, all the ones that we have, up and larger as well. And record number of large deals in Q4 and in Q3, largest deal in the company's history, which was an up sell deal in Q4, that's an important part of our growth strategy as well.

Unknown Analyst

Just on an issue, I wondered if you could just articulate [indiscernible].

Bryan J. Leblanc

Sure. So for the benefit of the webcast, I'll repeat the question just so that other people can hear it. And the question is, where and how do we land and what kind of up sell do you see from that, just a little bit more color on that. I think we talked about the 5 key areas that we do the best in. And I think sales and sales enablement, marketing and marketing enablement, innovation in the R&D group and customer support are the key areas that we tended to land first. We typically go after a particular business area, so I don't know that we have a favorite. We do well in all of those. But what we typically try to do is find a business buyer who's got one of those issues. And back to the use cases, we've got 30 or 40 specific use cases are in each of those areas. And so when we walk in, we talk to a business buyer about what it is that they've got that we can solve. And then typically, it's either a pilot or a small deployment that helps people get an idea of how Jive works. And this was how PwC started. And then, obviously, that can go all the way across the enterprise, either increasing the C count, which is 1 way that you can get up sell, or we've got modules that we can sell in, so you land the base Jive functionality and you can add Office and Outlook, you can add mobile, you can add video, you can add analytics or gamification. Those are all options to be able to add on to the Jive portfolio from a technology standpoint. And then we've got the ability to sell, an internal community, where you got an external 1 as a starting point, or vice versa. So we've got 3 ways that you can up sell. But I think, normally, if you're growing one particular area, the first, best way to get up sell, is through the increased usage in that one area. Right? So increased C count.

Unknown Analyst

A couple of basic financial questions. The $20 million difference between billings and revenue, that's all the -- is it annual upfront basically?

Bryan J. Leblanc

That's correct. The Jive model is, 85% of the time, is a 1 year license; and the other 15% are larger terms than that, typically, 2 or 3 years. You pay upfront for a subscription. And then, obviously, we take the revenue ratably over that 1 year period. So...

Unknown Analyst

And the 90%-plus retention before up sell, could you just walk us through it, because there are various different ways of calculating this?

Bryan J. Leblanc

Right. This is the pure way, and I'd encourage you as you're talking to other software companies to try this test out with your Q&A with those companies as well. We chose to be very transparent. I don't know that everybody has that same angle. But for us, it's base dollars are up for renewal, measured against whether they renew, that's the -- and if you want to see it written out, actually, in the S-1, there's a nice writeup with the methodology in there. And then, obviously, for upsell, it's anything that was added on to those accounts. So as you add to those over time, you're obviously adding to the renewal base. But we think those are -- that boundaries the discussion, and it kind of forces you to a clarity on whether the base dollars are renewing. I think people can talk about renewal rates in the '90s, a lot of times it's price increases are upsell, mingled in there, when you're trying to renew base contract dollars. That make sense?

Unknown Analyst

I have 3 short questions, if I may. One, I just wanted to know how much backlog/deferred coverage do you have to make to 2013 guidance as you're starting the fiscal year, because I think you have 117 in deferred and 30 plus in backlog, so how much of that is going to accrue in the 2013 revenue line? And then, just in terms of...

Brent Thill - UBS Investment Bank, Research Division

Maybe just let him answer it, and then you can keep asking, so that we can -- so we keep the momentum, really.

Bryan J. Leblanc

Yes. Yes. I think your best proxy, we don't give that statistic out. It's not a statistic that we publish. But if you're looking, obviously, the way the financials work, short-term deferred is probably the most important thing to start with. Because short-term deferred, by definition, is revenue that's on the balance sheet that's going to be recognized over the next 12 months. And then -- so that will be part of the answer to your question. And then the other piece is a piece of that off balance sheet backlog that isn't invoiced yet will obviously get recognized as well. And I think that disclosure is in the K. So you can actually get that percentage in the K. So you've got the information that you need right there in the filings, to be able to go do that work. But that's not a number that we give out as a specific percentage. Next question?

Unknown Analyst

And then I was just wondering, from a sales perspective, that new leader, Jay, came in, what exactly is he doing, both domestically and internationally? Because you mentioned different ways you can approach it, just geographically by vertical, how you -- what exactly he's doing, and how quickly you're growing headcount in sales?

Bryan J. Leblanc

Sure. So we don't give out specific sales hiring numbers. But to answer your question about Jay, what Jay is trying to do is up level all of our selling activity. If you think about Jay's size and skill, Jay's got the ability to range all the way from a company in a $100 million size, which is where we were last year, all the way up to $1 billion. And I think what Jay's doing is, Jay's laying the foundation for how to build that go-to market over time. And the work that we did with this consulting firm and the business value work that we did, that's all uniquely Jay. He's got a very good DNA for figuring out how to position and set yourself up to be a larger software company and a more strategic provider. And these are things that Jay is very good at. So he's been spending a lot of time there. He's also spent time on the go-to-market relationships, for example, PwC. And this go-to-market partnership is a way that Jay and what he's been doing is kind of showing up in the external kind of news that's out there on Jive. But internally, he's been doing a lot of work around how to make sure we get leverage out of that partner channel, how do we make sure that we get leverage for the sales organization, so that they can not have to walk in cold to every single selling opportunity. This is a big point for Jay, let's have more people out there with a message, more people out there selling. I think he's also done a fair amount of work, just thinking about how to manage that organization for the next couple of years, how to get it setup from a structured standpoint, so that it has a lot of leverage. You think about the pyramid inside selling, field selling, strategic accounts, Jay's an expert in all those areas. So he's been fine-tuning what we've got. The important thing to note is that what we have, we like. Right? So Jay is making fine-tuning changes to the organization, but the reality is that the organization that we had in place, pre-Jay, was doing well, and obviously, Jay is here to take it to the next level.

Unknown Analyst

So maybe I'll ask differently, is there -- I think you guided revenues, 30%, 35%. Should we expect headcount to grow around this kind of metrics? And just on -- still on sales, how much of it is direct versus partner influence?

Bryan J. Leblanc

So all of our selling is direct in the sense that we've got to go touch every one of those deals. We don't have a channel that we sell through. You're right, we do have partner influence. That number is hard to come by because it's anecdotal. But I'd say, probably, somewhere in the 20%, 25% of the business is generally, it has some partner element to it, in terms of being either referred or influenced. But that's not a hard metric because we're not, obviously, selling through a different channel. We don't give out specific headcount guidance. And obviously, we put our financial guidance out and we give you top line and then we have, obviously, bottom line through EPS number and through cash flow. But we don't break that down into specifics for how we're going to grow headcount. So unfortunately, I don't have a percentage for you there.

Unknown Analyst

And one last, if I might. Just in terms of big partners that you're networking with right now, currently, who are maybe 2 or 3 names that -- names you would like to be able to bring to the organization that you want to be working with in '13 or '14?

Bryan J. Leblanc

Yes, for competitive reasons, I probably wouldn't want to tip our hand there. But I would tell you that, yes, we feel good about the breadth and the reach of our partner program today. I think it's not so much getting somebody new into the mix. We're working with most of the important players in some way, shape or form. They all know about Jive. It's more getting focused on a couple of them. I think some of the larger guys are obvious. I don't want to state them. But I think you guys know, obviously, who moves the needle in terms of IT change management and being a systems integrator. But we're focused on several of the large ones. And I think, just stay tuned, it's obviously part of our go-to market strategy for 2013, 2014.

Unknown Analyst

I guess, SAP, they got SuccessFactors, they've got a lot of people now, and the talent management modules and trying to move them on to payroll, et cetera. I mean, they would say, social is something you can add into that, you've got the payroll and the HR records, you can understand which employee should be talking to one another. How would you sort of counteract that? And then, also, as a customer, they've got stream works, they've got Jam Box. How long do you think you can preserve them all? What are they trying to do to...

Bryan J. Leblanc

So the most important thing to know is that SAP is a big Jive customer. Everyone internally is using Jive to collaborate. So although they have these other things, none of them are being used internally. And they use us for both of their partner communities, directional communities. I think we know that the genesis of the Jam product, which is the other stuff that SuccessFactors brought to the SAP relationship. It really was very lightweight. And this notion that everyone's going to collaborate in the system if they write their performance reviews in, I don't want to indict that, specifically, but I would tell you that, show of hands, how many people love their performance management software so much that they have to use it every day. For the webcast, there's no one raising their hand except for me, and I just wanted to see if anyone would do it. I think, the notion that everyone's going to collaborate on the system that they do their goal management and performance management, has already been tried out, and largely invalidated. So I think they'll have to come up with another angle. We're integrated. By the way, I mean, the idea that you know who everybody is, what we integrate into active directory and everybody else's people directory. So you can see a hierarchy inside of Jive, and it's a very easy integration to know who's on board, and what their titles are. So I don't think that's a strategic advantage. I do think that having a platform that goes across everyone in the company is one that they'll use and one that brings all other information streams in, which is really what Jive does, is right. So they're on the right point, I just don't think that they -- they don't have you a uniquely defensible place to start with an inferior product. And they've had 0 attraction with Jam. I mean, really, meaningful, 0 meaningful traction. And we've got lots of ways to go and invalidate that, if that's ultimately the way they're going to go market. We don't see them as competitor, at least not today.

Unknown Analyst

Bryan, earlier, you talked about just sort of you seeing the first movers going through, and now, potentially, the mainstream. Is that more in terms of different verticals, so beyond, say, financial services. And if so, which verticals are you looking for this year to start sort of adopting social a little bit more? Can you just give a bit more color on what you're thinking about?

Bryan J. Leblanc

Sure. And important point to make, I mean, financial services is an important vertical for us but, certainly, we're very deep in others, as well: retail and telecom, and other technology companies. We've got a very good base to sell against. So I don't know that we're focusing on any one vertical, at least today. What we tend to think about are more of the use cases. So selling efforts are generally the same inside of a couple of swim lines in most businesses, and same thing with marketing and same thing with innovation. So I think -- and strategic alignment obviously is common across every company. I think that there's not any vertical that's not a candidate for Jive. And that FinServ has been an early adopter of us, primarily because we're the only company that can go inside and outside the firewall. And I think that's a unique advantage for us because if you think about most of the financial services companies that have been early adopters of Jive, it's because of we're the only social solution that allowed them to get a Web 2.0 technology behind their own firewall. But I think, we certainly have as much applicability in utilities or consulting services. Any of those verticals are strong for us. So I don't think we're targeting any one particular area. We are targeting, though, those 5 use cases, the way that we think about going to market is largely aligned around how people have already gotten value out of Jive. This consulting work that we've done has given us lots of specifics, and so we're armed with, walking into a customer situation, lots of ways to talk about how we drive business value in their business process flow. But most of those flows are not necessarily vertical they're more horizontal across lots of verticals. Make sense?

Unknown Analyst

Can you maybe provide a bit of color on the loan renewal rates that you have [indiscernible]. What are the main reasons, and a little bit of color on nonrenewals, et cetera?

Bryan J. Leblanc

So the question is can you provide some color on the nonrenewals. Right? So the premise that if you have a 90% renewal rate obviously 10% is not renewing. I think in any SaaS business, there's a frictional amount of customers who are not going to renew for various reasons. They go out of business, they merge, a company merges with someone that's got a different collaboration system. And those are all candidates. But I think if you boil it down outside of their frictional rate, right? So now you're taking 10% and starting to make statistical slices of what probably is starting to get to be a small enough number of customers that it's becoming not statistically very meaningful. But if you were to try and partition it into smaller chunks, the other chunk besides just normal friction in the business industry would be, for some reason, their community or what they're doing with Jive, didn't wind up flourishing. And I think you'd see that every once in a while. For example, there's a law firm here in the U.K. a couple of years ago, that thought they wanted to get social. They deployed Jive and they find the lawyers just didn't want to talk to each other. Now, probably could have seen that one coming, and we're not about to go to try to change the world one lawyer at a time. But I think, that's an example of where not all the use cases match. One of the things that we're very focused on when we sell it to a new customer these days as opposed to when we were starting up several years ago, is making sure that we understand what that first use case is. Because I think when you've got a good first use case with executive sponsors and a good -- and a business problem that you're trying to solve, you tend to take that risk away. You can't make it be 0, but you're certainly can make it be lower. But, I think, you've got that dynamic. And then the other dynamic is a competitor will occasionally steal a client away from you. And there are economic reasons for that. Not everybody is immune to competition. Every once in a while, we see, particularly in the external community side, one of our other more aggressive companies that we compete with, will come and try to steal our customer.

Unknown Analyst

Can you provide color on how the technology gets deployed? Is this an overlay on exchange or notes, or is it standalone technology? Because I believe you had also some of your own data centers and infrastructure.

Bryan J. Leblanc

So, yes, so this is a completely standalone piece of technology if you choose to use it. For example, anyone here can go and start using Jive and the cloud as we're talking. I mean, by the time we get done with this Q&A, you probably can be up and running a Jive instance inside your company, as a 30-day trail. So Jive, out of the box, will work directly as a cloud offering. What people typically do, though, for these larger enterprises, is integrate it with things active directory, or bring it into -- bring other content into Jive. So for example, SharePoint, we've got a connector, you can service SharePoint content and collaborate on it inside of Jive. Same thing for Documentum and document repositories like that, or other ERP systems. SAP information or Oracle information could all be surfaced inside of Jive. Those are things that you have to do with a consulting group. Out-of-the-box obviously, those connectors exist, but you got to wire them up with your unique instance. But using Jive as a standalone tool is straight, especially out of the cloud, you can run it right away without any overlay, whatsoever. And we are running -- we've got information in our data centers, we have, the one in the U.S., it's in Phoenix; and the one in Europe is in Amsterdam.

Unknown Analyst

So there's always an element that it's hosted on your infrastructure, and there's some inside pieces which are run behind the firewall, is that what you're saying?

Bryan J. Leblanc

No. You have the ability to run Jive behind the firewall if you choose to. So Jive has an offering, is offered out of the cloud, but about 1/3 of our customers will actually use Jive behind their firewall as a discrete. They'll run it on their data center. And they typically do that for privacy or security concerns.

Brent Thill - UBS Investment Bank, Research Division

Key source banks do that.

Bryan J. Leblanc

Yes. Banks that we know, that we might even be hanging out with.

Unknown Analyst

[indiscernible]

Bryan J. Leblanc

Well, I think, the external community market is bifurcating. And there's a part of the external community market, Facebook started this several years ago by kind of creating the impression that you could create a fan base on Facebook for free. And so I think that obviously led companies to think about that dynamic. I think the larger companies understand that it's a bigger echo system that you've got to bring together. And there's certainly a large value proposition for tying your internal and your external instances together. But the only real point solution competition that we have is with the among the external side. They're the only really small standalone vendor. And they tend to be the one, if there's going to be one, that can get aggressive on pricing.

Unknown Analyst

Are you seeing lifting moving back inside the enterprise, or are you staying...

Bryan J. Leblanc

Their intent would be to move inside the enterprise, I think. I think, for all intents and purposes, we have not seen their technology work inside the enterprise. Certainly to do what we do. I think it would require them to do more work on their technology to have that be the case. They're squarely in the external community, kind of space. I mean, that's where they've been in the last couple of years.

Unknown Analyst

I was wondering, could you talk about competitor, like, you mentioned Microsoft earlier, what they've done with Yammer, and whether you're see them or not in the RFPs a bit up there.

Bryan J. Leblanc

So we don't see Yammer in RFPs. I don't think Yammer is an RFP-able technology, at least as it exists today. You do see SharePoint, though, and we've seen SharePoint for the last 5, 6 years or more. They're a document management, file system management, centered technology that with a little bit of an overlay for social. I think, what we've seen in the last 6 to 9 months since Microsoft's bought them, is confusion in both the customer base around what ultimately their Yammer instances that they're using Yammer are going to evolve into, or what their Share Point instances are going to have in terms of Yammer's integration. Because I think Microsoft's confused. And Microsoft is trying to figure this out. There was a SharePoint conference back in the fall, and if you were to listen at all the presentations there, you'd come away with a very strong sense that Microsoft's not sure what they want to do with this technology. So I think they're trying to figure that out. And you just don't bolt something like Yammer onto the behemoth that is Microsoft. It's very hard to do. They were very ambitious when they laid out all their integration goals, but I think they paired out way back, which we would have expected. I mean, you could have just have expected that just knowing how integrations go in general. But, yes, we think the Yammer integration and the Microsoft is going to be confusing and hard. And it's going to create a lot of disruption and dislocation in both of their user bases as they try to figure this out.

Unknown Analyst

In terms of the Jive 6, I guess, is there a product, is there a version 7 which will be released this year? And just in terms of upsell, you talked about different modules, like video, and I think you had big data, it's a bunch of modules which are down. Can you just talk about which are the most successful modules and what the attach rate is? How many modules customers take initially and down the line?

Bryan J. Leblanc

Sure. Sure. So Jive 7 is the version that will be out this year. The first cloud release is in Q1. And there'll be 4 cloud releases this year. And then the on prem version will be released at the end of the year, that's our normal release cadence now. So 4 cloud releases and the on prem release catches up in Q4. And we think that's a really good cadence for customers. The on prem customers actually can't take more than one release a year, so this puts it kind of in the sweet spot for those people that want rapid innovation, they can take it right out of the cloud; and those people that want to stage it, so they'd do it once a year, will get it in the fall or the kind of in the winter time frame. The modules that we sell, the #1 selling module is the mobile module, followed closely by the Microsoft Office.

Unknown Analyst

What's the first one?

Bryan J. Leblanc

Mobile. So iPad, iPhone. The next most popular one is the connectivity to Microsoft Office. And that's the Office Desktop, Word, PowerPoint, Excel. As well as the Outlook integration, so being able to see the Jive environment inside of Outlook. That's -- for those shops that are Microsoft shops, that's certainly one of the more compelling integrations. And then I'd say,it's a jumpball for the next several, but analytics is very strong. The ability to do community analytics and see who's coming and what kind of traffic patterns, especially if you have an external community, gamification, which is the ability to do badges and status levels based on interaction. That's a big thing these days in terms of social. I'd say those kind of round out the most important ones.

Unknown Analyst

Great. I think we're going to end there. Thank you, Bryan.

Bryan J. Leblanc

Thanks, everyone. I appreciate the time this morning.

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