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Why Microsoft Really Bought Yammer

Paul Rubens | Aug. 3, 2012
What made Microsoft want to spend more than $1 billion for the social networking company? It could be because Yammer successfully marketed its business virally, offering a basic service for free and then convincing customers to pay for additional features.

Microsoft's purchase of Yammer is probably as much about Yammer's marketing model as it is about social networking prowess.

Microsoft's social networking capabilities are perceived as weak—and the aim of its recent $1.2 billion purchase of enterprise social networking firm Yammer is to put this right. But what may also lie behind the acquisition is Microsoft's desire to get its hands on Yammer's expertise with the "freemium" software model and the viral, member-get-member way of attracting new customers.

When Microsoft announced the deal at the end of June, Kurt Delbene, president of Microsoft's Office division, said that the plan is for Yammer to receive investment from Microsoft, but to continue to exist as a separate company. Yammer social networking will also be integrated (or continue to be integrated) with Microsoft's products. "Over time, you'll see more connections to your investments in SharePoint, Office 365, Dynamics, Skype and other cloud services," Delbene promised. He hinted that Yammer may be integrated with Exchange and Lync as well.

There's a good reason to keep Yammer separate: If it disappears into Microsoft's maw then there's a risk that it will never be seen again. "Microsoft has learned from what happened with its acquisitions of companies like Danger, Aquantive and Massive," says Wesley Miller, an analyst at DirectionsOnMicrosoft. (Microsoft announced in July that it has written down the value Aquantive, which it acquired for $6.3 billion in 2007, by $6.2 billion.)

Ballmer Sees Yammer Revenue in Corporate Conversions In purely financial terms, Microsoft CEO Steve Ballmer says he believes Microsoft will benefit from owning the standalone Yammer. "As long as we continue to drive hard with Yammer as a consumer offering, and then we ramp up the Microsoft sales force to help rapidly accelerate the degree to which we get corporate conversions, I think we'll see a very, very nice revenue ramp fairly quickly," he said.

What Ballmer is talking about is getting as many people as possible—and it's people, rather than organizations that is the key here—to sign up to Yammer's free offering, and then convincing them of the value of paying for Yammer's more sophisticated premium offering and using it in the workplace.

The deal has received a positive reaction from many Microsoft watchers. "I think that acquiring Yammer is a good idea for Microsoft from a social networking perspective because it gives the company a sexier, flashier, more consumer way of doing collaboration and it fills the gaps in Microsoft's social networking offering" says Jeffrey Mann, an analyst at Gartner. "But more importantly, it introduces the freemium way of doing things into the enterprise. They are buying a culture, a way of getting things done quickly, a web way of doing things," he said.


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