Microsoft: What would a Yammer acquisition mean for social business?

Reports that Microsoft has made a $1bn swoop for social enterprise platform Yammer have been swirling for the past few days, with most of the media – including MyCustomer.com – reporting on the possible deal.

While both companies are refusing to be drawn on the rumours, insider reports indicate that an official announcement could come by the end of June. If confirmed, the deal would represent a significant development in the world of 'social business'. But what would be the implications?

Dubbed ‘Facebook for the workplace’, Yammer provides a social enterprise platform enabling employees to collaborate within an organisation via either a free version of its application or a number of payable upgrades for larger firms.

Since its launch in 2008, the San-Francisco based company has grown rapidly with the company reporting more than 85% of Fortune 500 firms now use the platform. Additionally, the start-up secured $85m in funding at the start of 2012, building on its existing funding round of $57m, followed by its own acquisition in April.

But what attracted it to Microsoft in particular?

Microsoft's motivations

Microsoft currently has its own social offering, SharePoint Server, but as principal Ovum analyst Richard Edwards explains, this was designed and built in the pre-Facebook, pre-Cloud era.

“Yammer is a new breed of enterprise collaboration solution, designed from the ground-up to exploit social, mobile, and cloud technologies, and would sit neatly alongside Skype, the communication product that Microsoft acquired this time last year for $8.5billion," he says.

“Organisations investing strategically in ESN software are likely to have products from Jive Software and Telligent on their shortlists, but Microsoft’s acquisition of Yammer will undoubtedly mean that this offering gets added to that list too.”

Mark Tamis, social CRM and social business strategist at NET-7, agrees that the acquisition is a sensible decision from Microsoft to bolster its existing software.

He says: “Microsoft has an interest in buying Yammer in order to complement its core SharePoint product which doesn't fit the bill, and to gain access to a customer base in which they have currently little traction. What is less understandable is that this a notable break from their approach of encouraging their ecosystem of third party developers to create add-ons, such as is the case for Newsgator and Telligent which basically have the same features (and more) as Yammer and which are better integrated with Microsoft Platform."

Daanish Khan, head of marketing and strategy at Formicary Collaboration Group, argues the deal is partly a result of the recent acquisitions by Oracle (Virtue, Collective Intellect) and salesforce.com (BuddyMedia, Rypple, Radian6) as they look to add a social layer on top of their enterprise platforms.

He adds: “The deal also helps Microsoft to catch up in the growing SaaS marketplace. While SharePoint and Lync remain the cornerstone for organisations still reluctant to move to the cloud, the Yammer acquisition builds on top of the Skype acquisition to give Microsoft a leg in the SaaS space."

Not all commentators believe that the deal would represent a smart move, however. John C Dvorak was damning in a related article, suggesting that it would be "a serious indictment of the overall Microsoft prowess if the software giant cannot develop such a network internally, having played with all the elements at one time or another. This is not a good sign."

And while he has refuted that Microsoft is too late to the enterprise social networking party as it has now "helicoptered in and bought one of the big party boats", Dvorak believes that the company's corporate culture will undermine the potential of the acquisition.

He concludes: "This is not the Facebook or even the Google Inc. corporate culture. It’s a closed, tight-lipped, introverted and asocial culture... This does not bode well for the future of Yammer, and it doesn’t seem like something that will do Microsoft any good in the long run either. The deal doesn’t sound like a winner."

Social business implications

But what about the implications of a potential deal for the wider emerging 'social business' arena?

Tamis believes it is a positive thing to see more social collaboration and sharing features being added to the core products. “However, until we have platforms which seamlessly pull customer interaction, enterprise software and social collaboration together (internal, external and wider ecosystem), we should not as yet call this social business software,” he explains.

“This is where Yammer can potentially add value as the social collaboration layer between the different existing systems until there is a more unified solution.”

Edwards adds: “It’s not just Microsoft eyeing-up the opportunities afforded by the Facebook-led social paradigm shift. Established enterprise IT vendors, such as IBM, Oracle, Salesforce.com, and SAP, are all busy adding social capabilities to their business software solutions.”

Meanwhile, Dr Katy Ring at analyst firm K2 Advisory, believes many buyers will welcome the news:

“We know from our research study Collaboration: using social media across internal silos to improve productivity  that just over half of organisations currently using social media tools are looking to upgrade or change these tools in 2012-13.

“As these tools are being taken more seriously as a strategic productivity tool, selection criteria will also mature over the next 18 months and those products that are part of an established enterprise IT brand will have an advantage. So, we will see a lot more consolidation in the social media market over the next year as the established IT software suppliers battle for control of the social front office.”

Sector solidifier?

As an emerging field that has had its detractors, would the $1bn deal legitimise the social business sector?

“In my opinion the size of the deal is not representative of revenue that Microsoft hopes Yammer will generate (a multiple in the 100s of the current run rate), but rather a way for Microsoft to gain more market credibility in the social business sector - although they could have looked at acquiring other companies in their extensive existing partner ecosystem rather than Yammer,” says Tamis.

Matt Rebeiro, innovation manager at RMM, doesn’t believe the deal emphasises the theory that businesses need to be more real-time or social.

He says: “Most organisations already recognise this. What this deal does do, however, is likely move social business capabilities up the agenda for the COO. This deal marks a move from early adoption to early majority as those with legacy SharePoint systems are are able to exploit new tools and functionality that can support the creation of a deeper social business culture.”

Constellation founder and analyst Ray Wang says that other deals, such as that between LinkedIn and Jive, have already legtimised and paved the way for social business. He said: "I think [the Microsoft Yammer deal] further shows how this is more than a bubble but a shift in the social and technology paradigm from transactions to engagement."

Khan concludes that the deal symbolises the future of the social enterprise space: “Consolidation of the industry through acquisitions started a couple of years ago, and we expect it to continue over the next 3-5 years as major platform vendors purchase more companies that fill in some of their gaps.”