Microsoft buys Yammer

Microsoft has agreed to acquire Yammer, a maker of cloud-based enterprise social networking (ESN) software, for US$1.2 billion in cash, a deal rumored to be in the works for the past week-and-a-half.

Yammer, which was founded in 2008, will continue to be led by its CEO David Sacks as it becomes part of Microsoft’s Office Division, headed by President Kurt DelBene, Microsoft said on Monday.

“Yammer will be an important addition to Microsoft’s cloud services and this acquisition underscores our commitment to helping customers move to the cloud. Together we’ll deliver the most complete solution in the marketplace,” DelBene said during a press conference to discuss the deal.

Becoming part of Microsoft will give the Yammer team a boost in expertise and resources that will allow the product to reach “massive scale,” Sacks said.

“Microsoft is one of the few software companies whose products are household names. Today’s announcement signals the beginning of our plans to make Yammer one of them as well,” Sacks said.

Microsoft CEO Steve Ballmer said Yammer has struck a balance between fostering “viral” adoption of its product while also giving IT departments security and management features they need.

“The so-called consumerization of IT is a trend which I think perhaps more than almost any other company out there Yammer has gotten right,” Ballmer said.

ESN software provides Facebook- and Twitter-like capabilities adapted for workplace use, including employee profiles, activity streams, discussion forums, microblogging, wikis, idea generation software, joint document sharing and editing as well as tagging, rating and reviewing of content.

ESN products have become popular in recent years as tools that, when properly implemented and adopted, can improve the way employees collaborate and communicate, leading to increased efficiency and productivity, by complementing traditional applications like email and instant messaging.

Spending on ESN products grew almost 40 percent last year to $767.4 million, and is expected to grow at a 42 percent compound rate through 2016, when it will reach almost $4.5 billion, according to IDC.

Yammer competitors include Jive Software, NewsGator, Socialtext and Tibbr. In addition to ESN specialists like Yammer, larger software vendors have also been adding ESN features to their broader collaboration suites and enterprise applications, including IBM, Oracle, and Cisco.

With the Yammer software, Microsoft puts itself in a position to improve the ESN capabilities in its communication and collaboration products like Office, SharePoint and Lync, an area in which Microsoft has been seen as trailing competitors.

“This immediately makes Microsoft a stronger competitor in the enterprise social market,” said Larry Cannell, a Gartner analyst. “It’s a recognition by Microsoft that today’s information worker isn’t just focused on content. They need help working together and building relationships with others.”

Microsoft didn’t give specifics as to how it might integrate Yammer’s technology into its products. It said Yammer will continue to develop its software, maintaining “its commitment to simplicity, innovation and cross-platform experiences.” Microsoft will also work to accelerate Yammer’s adoption in conjunction with complementary Microsoft products like SharePoint, Office 365, Dynamics and Skype.

“The key question is, how do we bring productivity, communications and collaboration from Microsoft into the Yammer world, and how do we surface people’s professional social-networking relationships inside of what people do every day in Microsoft Office and other business applications, and we think there’s just a tremendous, tremendous opportunity in doing both of those things,” Ballmer said.

Microsoft seems to be approaching the acquisition with the right attitude of learning from Yammer’s success and not interfering with its team and its development process, Cannell said. It’s key for Yammer to be able to continue innovating in this space, he said.

Rob Koplowitz, a Forrester Research analyst, said Microsoft is choosing the best option for integrating Yammer into its business: Yammer is retaining a lot of independence, it will be part of the Office division and its cloud-based model will be supported.

“It’s about as good a news as could have been hoped for in terms of how the deal could have been structured,” Koplowitz said. “It’s an acquisition, and those can always be a bit treacherous, but Microsoft is setting itself up for success.”

Over time, Microsoft is likely to deepen the integration of Yammer into products like SharePoint, Office 365, Outlook and Lync, analysts said. That would continue a strategy Yammer has been pursuing for more than a year. It rolled out its first integration with SharePoint in 2010 and later enhanced it. In April this year, Yammer acquired U.K. company oneDrum, whose software lets users collaborate on Word, Excel and PowerPoint documents in real time.

However, Microsoft must also make sure Yammer continues to work well with products from other vendors, such as and SAP, which it integrates with via custom connectors and using Yammer’s open API (application programming interface), Koplowitz said.

“Yammer already has an aggressive integration strategy with Microsoft products, and they’ll continue on with that. The concern is whether Yammer will become too focused on Microsoft integrations to the exclusion of other vendors,” Koplowitz said. “Yammer has been playing Switzerland. It shouldn’t now favor Microsoft and reduce the potential of a broader integration portfolio.”

No timetable was given for the closing of the deal, which is subject to regulatory and other approvals. News of a possible deal between Microsoft and Yammer emerged on June 14, when, citing anonymous sources, Bloomberg reported that Microsoft was in advanced talks to acquire Yammer for about US$1 billion.

Yammer’s software is used by more than 5 million corporate users and in more than 85 percent of the Fortune 500 companies. It offers a basic free version of its software and three fee-based tiers. Yammer, which has raised $142 million in funding, has about 300 employees.

About 200,000 businesses use Yammer in more than 150 countries, DelBene said. One such customer is Deloitte, which rolled out Yammer to 190,000 employees, he said.

Yammer adds about 250,000 corporate end users every month, according to Sacks. Its other customers include Tyco, Ford and Nationwide Insurance.

The deal triggered reactions from several Yammer competitors who emailed statements to the press.

Tom Kelly, CEO of Moxie Software, said the deal “validates the critical nature of social connectivity as an enterprise capability” and argued that customers who want a “full-featured enterprise collaboration software” can get it today from his company.

Tim Young, vice president of social enterprise at VMware, said the deal validates VMware’s decision to buy Socialcast last year. “Today’s news is yet another proof point that social is becoming a critical and core component in the way that employees work,” he said.

Chris McNulty, of Quest Software’s SharePoint business, wondered when customers can expect to see Yammer fully integrated into SharePoint.

“It would take a Herculean effort to get Yammer integrated into the next SharePoint release, so as a backup option it’s likely there will be an improved integration pack at the time of release. Bottom line; the benefits and implementation timeline of SharePoint plus Yammer must be made crystal clear to SharePoint customers,” he said, adding that the wait could conceivably extend several years out.

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