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Microsoft Makes Social Networking Play With Yammer Buy

The sale is for $1.2 billion in cash.

Microsoft has taken a big step into the social networking arena with the acquisition of Yammer Inc.

The move is costly from a financial point of view, but Microsoft may have had little choice, if it wanted to compete in the burgeoning field.

Yammer is an enterprise social networking service provider. The sale is for $1.2 billion in cash, the company announced on Monday. Completion of the deal still requires regulatory approvals.

Yammer offers both a free and paid cloud-based social networking service that's designed to enable secure collaborations within an enterprise. Employees using the service often start with the free service and in effect bring it into a company. It's this "viral" consumer-based marketing model that Microsoft CEO Steve Ballmer sees as generating revenue for Microsoft.

"Yammer now has a sales model that we like: viral adoption by the end user, by the consumer, inside some kind of professional organization with an option to buy enterprise-level capability and management that is phenomenal," Ballmer said. "What does that all mean? As long as we consider to drive hard, which is sort of Job 1, with Yammer as a consumer offer and then we ramp up the Microsoft salesforce to help rapidly accelerate the degree to which we get corporate conversions, I think we'll see very very nice revenue wrap fairly quickly, which should allow this thing to be accretive in the not too distant future…. Our ability to monetize with the enterprise around Yammer is very high."

Yammer CEO David Sacks will join the Microsoft Office Division under President Kurt DelBene. The team will remain in its San Francisco headquarters. Current Yammer customers will continue to get secure private social networking services from the company, according to DelBene.

Microsoft Getting More Social
Microsoft has not been a thought leader in the enterprise social networking space, according to Forrester Research analyst Rob Koplowitz, who responded to Yammer acquisition rumors disclosed more than a week ago. Now that Yammer is being acquired, Microsoft's enterprise social networking capabilities will be improving, especially with its integration into the Office Division.

"These [Office Division] guys can position Yammer as part of a broad horizontal collaboration offering," Koplowitz wrote in a blog post. "This would mean that Microsoft, in one fell swoop, becomes good at social and places it adjacent to their very strong market offerings in email, unified communications, workspaces, etc. This keeps Microsoft customers from having to augment their collaboration strategy with third-party offerings from folks like IBM, Jive, Telligent and others (we'll talk about close Microsoft partner NewsGator at a future time if this deal goes down)."

In a press conference about the acquistion, Sacks claimed that Yammer's integration with Microsoft will help broaden the use of enterprise social networking in general. He said that Yammer currently has more than five million registered corporate users and that the company has been adding more than 250,000 corporate customers per month.

In April, Yammer bought oneDrum, a U.K.-based maker of file sharing, collaboration and desktop synchronization technologies that work with Microsoft Office. Yammer planned to combine its social technology with oneDrum's solutions. How that integration will unfold now that Microsoft is acquiring Yammer hasn't been mapped out yet, according to Sacks, during the conference call.

Yammer's enterprise social networking service currently works as a SharePoint add-on to augment social networking in that product. However, Microsoft is planning to tap Yammer's technologies in its other products, such as Office 365, Microsoft Dynamics (particularly CRM) and the Skype voice-over-IP telephony solution. Microsoft announced its $8.5 billion purchase of Skype just over a year ago.

DelBene noted that Microsoft is currently investing substantially in having SharePoint be a rich cloud offering, so the Yammer acquisition would open up opportunities in that space. Ballmer clarified during the press conference that the Yammer acquisition is primarily about Office, but it will add benefits for other Microsoft technologies, including the Microsoft Dynamics product line.

Michael Fauscette, group vice president for software business solutions at IDC, noted that Yammer's annual revenue is about $23 million. It offers a successful product and good potential for Microsoft.

"They have a very strong user base in the free model as well as a good record of converting the base to paid," Fauscette stated via e-mail. "This gives Microsoft a leg up in the space, something that wouldn't be possible just by building their own product. The acquisition is important for the Office franchise, SharePoint and even Exchange. With Microsoft's great channel and distribution reach into the enterprise, they should be able to accelerate Yammer's penetration quite a bit, very quickly."

Partner Reactions
Microsoft's Yammer acquisition will be a boon to the existing Yammer partner community too, according to Brian Reisgen, CEO of Sparqlight, a provider of enterprise social networking solutions that leverage Yammer's platform.

"I see so much criticism out there about this acquisition that social is just a toy," Reisgen said in a phone call earlier this month. "I think Microsoft is looking at this much bigger. They are seeing it as the platform of the future. This is a big deal for everybody."

Yammer took forward steps in getting to the enterprise social networking space, according to Reisgen.

"Yammer started out as a simple Twitter clone," he said, "like a very basic messaging microblogging service. Then they became a more Facebook-style of a platform. They started to layer on document management and collaborative document editing, sharing with groups, and so forth. They started to move into this idea of actually getting work done within this environment. If you think about it from a Microsoft Office, SharePoint, Exchange perspective, this [acquisition] makes total sense to me."

The cloud integration aspect of the Yammer deal is helping Microsoft to become more relevant to developers, he added. Reisgen, who works as a developer, said that the future of development is with the cloud and RESTful interfaces.

Other Microsoft partners were more skeptical about the Yammer acquisition. Ramin Vosough, vice president of products at Neudesic, a Microsoft partner that makes a competing enterprise social networking product called "Pulse," noted that some problems won't be solved with Microsoft's purchase of Yammer.

"From a business standpoint, from a customer standpoint, all of those technologies that existed in the past aren't meeting their needs," Vosough said about business communications solutions, in a phone interview. "And now taking another approach of taking social and bolting it on to those existing platforms doesn't solve the problem, to be very frank. So, our aim as a technology company that cares about business innovation is to solve the broad problem of communication and collaboration using social technology. And in order to do that, our unique approach to that is that social should not be seen as another communications silo where information, connections, knowledge and innovation all get trapped in one area where you do work. In the past, that area was either e-mail, SharePoint or line-of-business applications. Then social came along as a layer to solve those problems because everyone's connected, everything's searchable, everyone follows information and subscribes to information. But how does the Yammer and SharePoint piece solve that?"

Vosough noted that Neudesic offers both cloud-based and customer premises-based enterprise social networking solutions that work with Microsoft technologies and that also work independently of them. However, so far, Yammer's solution has just been cloud based. To solve the siloed communications problem, what's needed is a "social connected fabric," enabled separately from a single product, he contended.

About the Author

Kurt Mackie is online news editor for the 1105 Enterprise Computing Group.

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