Microsoft Confirms $1.2 Billion Yammer Acquisition
June 26, 2012

Microsoft Confirms $1.2 Billion Yammer Acquisition

Microsoft confirmed recent rumors on Monday when it officially announced it would acquire San Francisco-based enterprise social-networking startup Yammer for $1.2 billion in cash.

The software giant said Yammer would join its Office Division, led by Kurt DelBene. The division also includes SharePoint and Skype.

"The acquisition of Yammer underscores our commitment to deliver technology that businesses need and people love," said Microsoft chief executive Steve Ballmer.

"Yammer adds a best-in-class enterprise social networking service to Microsoft's growing portfolio of complementary cloud services."

Microsoft said the Yammer team would remain in San Francisco as a stand-alone operation under the startup´s current CEO and founder, David Sacks, who will report to DelBene.

“Yammer will continue to develop its standalone service and maintain its commitment to simplicity, innovation and cross-platform experiences,” Microsoft said in a statement.

Founded in 2008, Yammer allows business customers to create private, Facebook-like networks among employees and clients. The service currently has some 5 million users from companies such as Ford, Deloitte and 7-Eleven, Mr. Sacks said on Monday.

“When we started Yammer four years ago, we set out to do something big,” Sacks said.

“We had a vision for how social networking could change the way we work. Joining Microsoft will accelerate that vision and give us access to the technologies, expertise and resources we´ll need to scale and innovate.”

Microsoft said it plans to accelerate Yammer´s adoption alongside complementary offerings from SharePoint, Office 365, Microsoft Dynamics and Skype.

The acquisition is still subject to customary closing conditions, including regulatory approval, Microsoft said.

Rumors of Microsoft´s acquisition of Yammer have been circulating for the past two weeks, following reports on Twitter describing a conversation overheard at a San Francisco coffee shop in which the buyout was called a “done deal.”

The acquisition received praise from some analysts, while others expressed concern that Microsoft may have acted too late, and paid too much for Yammer.

The deal comes as companies such as, Oracle, Google and SAP continue to enhance and expand their corporate social networking features.

Microsoft has been trying unsuccessfully for years to gain traction in social networking with its SharePoint product, a collaboration server included with versions of its Office productivity suite sold to large enterprise customers.

Wesley Miller, analyst at research firm Directions on Microsoft, said Microsoft is attempting to “fill a gap.”

"The valuation seems high," he told USAToday.

"This is Microsoft recognizing a valuable player in the field. The reality is, Yammer has a name, brings a fair amount of users, and offers an experience which SharePoint doesn't."

Miller noted that Microsoft spent $1.2 billion in 2008 to acquire FAST Search & Transfer to integrate the search engine into SharePoint.

But that enhancement has failed to impress customers, he said.

It is not clear whether the Yammer acquisition will share the same fate.

"My concern with Yammer is that they may present a more confusing picture in the short term, by broadening Office and SharePoint," he said.

Trip Chowdhry, managing director at Global Equities Research, also said that Microsoft will have a hard time catching, which has been enhancing its Chatter social network for the past two years, and Oracle, which is pushing its Social Relationship Management services.

"Microsoft is too late to the social party," Chowdhry told USAToday.

"You cannot get into a leadership position by imitating the leaders. This is a non-event for Microsoft and for the industry."

Tony Zingale, chief executive of business social network company Jive, said the buyout validates the idea that social networking will emerge as a critical business tool.

"Microsoft had to make a rather desperate move to buy a company – that has an extremely narrow offering that's given away for free – to be able to compete with the likes of someone like Jive," he said.

Karl Keirstead, an analyst with BMO Capital Markets, who helped underwrite Jive's December IPO, noted that shares of Jive´s stock have risen about 18 percent in the two weeks since rumors surfaced about a potential Microsoft deal with Yammer.

He estimates Yammer's annual revenue at between $25 million and $30 million, which would mean Microsoft paid 50 times revenue for the company.

Yammer had reportedly accumulated $142 million in venture capital from Draper Fisher Jurvetson, PayPal co-founder Peter Thiel and others. The company says it has more than five million registered corporate users, but only about 20% are paying customers.

In a conference call Monday to discuss the buyout, Ballmer said Microsoft's sales organization could help push the percentage of paying users higher.

But Keirstead said he thinks the acquisition might ultimately be less about strengthening Yammer as a stand-alone product than about integrating its features into SharePoint.

"Microsoft, in an effort to protect its SharePoint franchise, needs to make it more social and do so fast," he told the San Jose Mercury News.

The $1.2 billion price tag for a company with such modest revenues seems "a little bit of a defensive move."