Microsoft's Yammer Play: Too Much, Too Late or Too Soon?
Most organizations have not deployed enterprise social tools--and they have few plans to do so over the next 12 to 36 months. Did Microsoft pay too much and move too soon to enter this market?
In a deal officially announced this week, Microsoft is acquiring Yammer for $1.2 billion--a steep price that will be tough to justify any way the vendor plays it. Yammer, an enterprise-grade social networking service that brings Facebook-like features to a closed business environment, is a success story. But it's hard to see how Microsoft has done anything but paid too much for a service that most of its customers are years away from deploying--if they opt to do so at all.
Today, Yammer claims to have about 5 million users, close to 1 million of whom pay for the service. That's an excellent conversion rate, but with annual revenues estimated to be about $25 million, Microsoft paid close to 50 times revenue for the company. Obviously, the numbers alone don't warrant the $1.2-billion price tag. What would? In this case, nothing.
Clearly, Microsoft is playing catch-up in the social networking space. IBM and Cisco have had tools in this area for awhile now; along with a multitude of start-ups like Yammer, they've made it possible for companies to give their employees access to a closed, secure social media site for internal networking, information sharing, and loose collaboration.
I'm a big believer in the value of such sites for businesses with remote workers and/or geographically dispersed operations. They make it easy for employees to find information--especially the kind that resides in their co-workers' heads--and locate expertise within in the organization. But just as important is their ability to create a sense of community among remote workers, many of whom might not see each other live and in person more than once or twice a year--if ever. Just as Facebook makes it possible to stay in touch with old friends from far-away places, services like Yammer allow employees to deepen their relationships with one another--and partners and customers, should the company so desire--by sharing personal and professional information on a regular, online basis.
Microsoft does not have such capabilities within its current toolset, and that was a glaring omission. But building a social networking tool shouldn’t be difficult for a company with as many developers as work in Redmond. Selling it is. And that’s where the $1.2-billion price makes no sense.
Microsoft says Yammer will be part of its Office division, which answers the first question many observers had when the rumor of the acquisition first surfaced two weeks ago. That's not to say the vendor couldn't integrate Yammer into Dynamics, its CRM application, to better compete with Salesforce.com (which, thanks to Chatter, is the clear leader in social CRM). But with the organizational move, Microsoft is saying it wants to make Yammer a part of its broader UC suite. That's a sound decision, although it remains to be seen how and whether Microsoft will integrate a hosted service with its on-premises applications; Yammer's immediate sweet spot is Office 365.
And it's hard to see how Microsoft couldn't have developed its own social media platform for a heck of a lot less than what it paid for this one.
Next page: A Question of Timing?