Analysis: Why Buying Yammer Makes Sense for Microsoft

Microsoft announced that it would buy Yammer for $1.2 billion, after a week of speculation that the deal was imminent. From my perspective, having researched the enterprise social networking space (see report), the acquisition is a continuation of current trends in the industry and makes a lot of sense for both MSFT and Yammer.

Yammer CEO David Sacks wrote in a blog post about the acquisition, “When most people thought social networking was for kids, we had a vision for how it could change the way we work.” When Yammer launched at TechCrunch four years ago, it won the “best in show” award from judges, and it’s been on a rocket ride since then for two simple reasons — it’s free and people love using it. The result: 85% of large companies have Yammer inside their walls.

That love-driven virality is a key reason why Microsoft bought Yammer — after all, who would use the word “love” to describe Microsoft or a product like SharePoint? The fact is that Yammer and its competitors are creating new ways for work to get done, that is not only effective but also — dare we say it — makes work fun. Microsoft knew that it was behind in the enterprise social networking space and could either build organically within SharePoint or acquire. I think they did the smart move by buying Yammer, as it gives them not only the largest independent player, but also penetration into virtually every company that already is using its products.

The challenge going forward is how Microsoft will integrate Yammer into its Office offerings, SharePoint in particular. Yammer already enables integration with SharePoint by inserting microblogging capabilities right into it, making the enterprise app much more social. Up to this point, the main selling point of ESNs has been that they just had to be better than SharePoint’s built-in social tools. That is no longer the case, so you’ll see other enterprise app companies scrambling to snap up remaining players like Moxie. Here’s a graphic from my ESN report from February that shows how the world (used to) stack up in terms of players — this is a game being played by the big enterprise players now.

Fig. 7 Enterprise Social Networking Technologies Evolve From Three Scenarios

While there is concern that adding Yammer makes worse an already-confusing mix of Microsoft offerings, it’s nothing compared to the bewildering situation facing CIOs when it comes to ESN. One CIO shared with me that he faces a situation of having Salesforce’s Chatter, VMWare’s Socialcast, Yammer, and SharePoint all running within his organization. And that didn’t include rogue installations of Box and Google+.

In the end, it makes sense for each company to have one — and only one — enterprise social network in order to ensure universal access. Thus ESNs like Yammer become battlegrounds in the way that other foundational enterprise tools like email, IM, and CRM have become. In this way, Yammer makes a whole lot of sense for Microsoft, as it becomes more integrated into all of its offerings, rather than remain a standalone. Here are some examples:

  • Any organization with a SharePoint installation will now get supported integration of an ESN into their organization — and more importantly, make sure that the technology actually increases business value.
  • Any organization with Yammer but that doesn’t have SharePoint will become a lead for Microsoft.
  • Office 365 gains a huge foothold into SMBs that may have already implemented Yammer, but would never consider SharePoint. If they are already using Google Apps, integration between Office 365 and Yammer becomes a potential switching point.
  • Microsoft Dynamics has a potential answer to Salesforce Chatter.
  • Provides a counter to IBM’s Lotus Connections.
Taking all of the above into consideration, the $1.2 billion price tag begins to make sense. But the intangible brand value goes back to where this blog started — the potential that we as workers and companies will again love Microsoft. Even if that translates to just a chance for a mild “like” for Microsoft products because they enable social connections, it will have been worth it for Microsoft to acquire Yammer.


7 thoughts on “Analysis: Why Buying Yammer Makes Sense for Microsoft”

  1. Free, yes.  People love it…not so much depending on who you talk to.  Our company tried it in 2008 and it failed to gain any traction.  It fails to organize itself around anything but a person, creating a large amount of noise and little signal.  You see more traction when the collaboration is more focused, whether around a project (e.g., basecamp), team, file, account/opportunity (e.g,. chatter), etc.  

    And the most misleading statement that 85% of large companies use it.  Yes, there are people in probably 85% that have signed up for an account, but are they using it?  Yammer did one thing smart.  It never deleted company accounts, so those users are all active.  Of course, if you take the opposite side and say that they only have 15% to go…well that is much worse.  Because a 15% bump to their $20-25M revenue isn’t going to make a dent in MSFT’s P&L.  Mostly it is used by SMB shops who want a light information posting tool.  

    In two years when Yammer as a standalone service is barely growing and the integration to Office is weak, people will say that Microsoft screwed up the brilliant acquisition.  That will be the easy explanation, but only for people who don’t dig deeper.  

  2. This acquisition makes complete sense for Microsoft. I’m hoping they maintain their refreshing, design-led approach (windows 8, surface) to the integration of Yammer. If they do, I think the competition between Microsoft behind Yammer and Salesforce behind Chatter will ensure a lot of accelerated innovation in the social enterprise, which will be beneficial for all – especially the enterprise customer. 

  3. 2cents, I would say that most times Enterprise Social Networks don’t fail because of the tool, but because a lack of leadership. Viral adoption only works when there is someone who knows how to leverage the power of the community and is helping the community achieve business and personal success. To your point about noise, I’m not 100% convinced that Charlene’s statement about “Universal Access” is always the right answer. Niche social networks can provide better value for certain groups of people (e.g. Chatter for sales folks). CIO’s want one, because it’s easier to manage, but in the end, complexity sometimes is warranted.

    1. Greg,  I’d agree that the tool is rarely to blame because the tool does what the tool does.  Generally, it does that fine.  You bring up a good point on leadership and you either need executive commitment or groundswell of employee support.  With all that said, you could have incredible leadership but the ESN has to provide value to the employee base.  It has to help them do their job, grow their careers, distract, entertain, something.  A walled-garden Facebook is probably not interesting enough for the majority of companies.  That’s why I’m a believer that disconnected updates / information sharing (which if you’ve used Yammer, you realize that’s what it does) fails to meet the bar of value.

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