Microsoft Steps Up In Social Marketing Space with Yammer Acquisition

By David A. Kelly, Upside Research

In my last blog, I covered some of the recent acquisitions heating up the social marketing space. Major enterprise vendors like SAP, Oracle, and Salesforce.com are on spending sprees to acquire the hottest technologies in the social space as they aim to round out their enterprise offerings with social tools for the workspace. Now, Microsoft is upping the ante considerably with its recent announcement regarding Yammer. For a price of $1.2 billion, Yammer has agreed to be purchased by Microsoft, according to sources. Neither company has come forward to confirm the purchase.

The synergy between the two products makes for an easy sell, since Yammer’s social collaboration software already links to Microsoft products like Outlook email and SharePoint collaboration, enhancing the traditionally dominant office productivity tools.
With this acquisition, Microsoft will be taking Yammer out of the active IPO market that the company was apparently headed for. Yammer has raised more than $142 million in venture funding, most recently adding to its coffers in February. The company had mentioned the possibility of an IPO in a year or so, which has been a popular route for social technologies, both business- and consumer-focused.

The Facebook IPO is still causing waves through the industry, and there was a successful IPO of another business-focused social technology leader, Jive Software, which went public in December 2011. Since then, Jive has seen its stock price rise 50% while Facebook has seen its stock price fall almost 25% off its initial opening day price of $42. Clearly, valuation in the business-side of social is going better, and Microsoft wants in on the action.

It will be interesting to see how Yammer’s business model evolves with the acquisition by Microsoft. Yammer has historically made its software available for free to corporate workers, with the hopes that their companies will eventually pay for added features and upgrades. While Yammer claims more than 4 million users working at 200,000 companies are leveraging its free social-networking tool, only 20% are paying customers. Given that Microsoft’s Office generates more than half of its annual operating income, it will be interesting to see if this business model for Yammer changes – whether Yammer’s functionality is folded into Microsoft or if a version of Yammer continues to exist free and clear of Office.

With this acquisition, yet another leading-edge social tool for businesses is being folded into an existing enterprise market leader. Clearly, all of the activity reinforces the market sentiment that enterprise customers want social functionality in their workspaces. I think that this truth will continue to become a driving force in enterprise computing, and those vendors who do not build or buy social to add to their solutions will be left behind as relics of the past.

These buying sprees provide an opportunity for enterprise companies to consider exactly what role they see social playing in their IT strategy over the coming months. Blind adoption of social is not the answer, nor is it enough to go with an enterprise vendor who has scooped up some of the latest hot social technology. That social technology must be integrated seamlessly with the enterprise offering, and it must make sense for the employee workspace where it will end up. Otherwise, it is just another feature like the 80% of Microsoft Word that most corporate workers never touch.