What the Yammer Acquisition Says About Microsoft – and Enterprise Social Networking

Editor’s Note: This article by Reachable CEO Al Campa was originally published on PandoDaily.

Much of the recent analysis on Microsoft’s $1.2B acquisition of Yammer focused on the slick application Yammer had built, their rapid viral adoption, and how it represented the assent of the social enterprise as the next hot category. Certainly all this is true, as Yammer is a very simple and intuitive application, and had a devoted following of several million users. And Microsoft’s $1.2B speaks volumes about the value of the social enterprise to an established industry leader.

But this acquisition also says a lot about Microsoft and their current state of mind. Something drove them to merrily pay $1.2B for a company with less than $20M in revenues. $1.2B might be pocket change for Microsoft, but it is still an incredible amount of money.

For that amount of money, Microsoft could have hired 1,200 developers and paid them a handsome salary for 10 years to build a social application on an unprecedented scale.  Anything Microsoft built would be backed by a well-funded marketing machine and an army of Microsoft sales reps and channel partners capable of selling it worldwide in massive volumes. But the company chose instead to pay that fortune for an existing application with a relatively modest user base and revenues.

This suggests three things about Microsoft:

First, the company didn’t think it could replicate Yammer’s success – even with a virtual mountain of money to spend on it. Building a social application is a tricky thing right now. Some companies harness the magic and some don’t. Luck and timing play a huge role in adoption. Yammer had figured out how to virally spread within the restricted walls of large enterprises. And how to monetize this adoption, albeit modestly so far. To Microsoft, this represented solid gold.

Second, the move also suggests that Microsoft was desperate to get into the social enterprise game now – not next year or the year after. The company missed out on consumer social media and watched Facebook, Twitter, and others establish dominant positions. Determined not to let the social enterprise revolution pass it by, Microsoft purchased Yammer to compete with established leaders like Salesforce.com and newcomers like Jive. The social enterprise train is leaving now and Microsoft didn’t want to get left at the station.

And lastly, Microsoft’s acquisition shows they realize SharePoint needs a big-time makeover. Microsoft has long touted SharePoint as an all-in-one collaboration platform that serves as the focal point for enterprise content and communication. Yammer’s success shows that this in fact was not the case, and that Microsoft likely took a long hard look in the mirror and didn’t like what it saw staring back at them.

This deal highlights one of my favorite things about the technology industry and business in general: For every new startup that finds success, and for every new market created by the relentless innovation in technology, there is some established company somewhere that is missing out.

One company’s success always comes at the expense of another company. A new market almost always replaces an older more mature market. Google’s success comes at the expense of Yahoo and Microsoft. Facebook’s success comes at the expense of Google, Yahoo and Microsoft. Twitter’s success will probably come at the expense of Facebook and Google. It’s the natural order of business and in particular the technology business.

In this case, Yammer was not a threat to Microsoft as much as the rise social enterprise was a threat to their enterprise franchise. Microsoft felt compelled to move aggressively to grab some beach-front property on the social enterprise gold coast before someone else did.

The question is whether it will pay off. With a current market valuation of 3.5x trailing revenues, Microsoft must sell $350M of Yammer annually to justify the $1.2B expense.  It undoubtedly hopes to sell much more than that. And it’ll need to, in order to maintain that beachfront property because the rise of the social enterprise will shake up the established players. It’s the natural order of business.

Leave a comment

Your email address will not be published. Required fields are marked *