With $1.2 Billion Yammer Buy, Microsoft’s Social Enterprise Strategy Takes Shape

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Microsoft just announced it has indeed acquired Yammer, the four-year-old social networking company for enterprises, for $1.2 billion in cash.

The announcement confirms weeks of very credibly-sourced rumors that have been floating for weeks around the tech blogosphere (and San Francisco’s popular cafes, as first overheard by Business Insider’s Owen Thomas.) The actual price tag is exactly what had been reported by the Wall Street Journal more than a week ago. According to Microsoft, the Yammer team will be folded into its Microsoft Office division while continuing to report to Yammer’s CEO and co-founder David Sacks.

Sacks has weighed in on the deal with a post on Yammer’s corporate blog entitled “Yammer’s Next Chapter“, which reads in part:

“When Adam Pisoni and I started Yammer, we set out to do something big. When most people thought social networking was for kids, we had a vision for how it could change the way we work. Four years ago, we started paddling out to catch the wave that we’re riding today.

With the backing of Microsoft, our aim is to massively accelerate our vision to change the way work gets done with software that is built for the enterprise and loved by users.”

It’s great news for Yammer and its investors, but in many ways this begins the tough part.

Firstly, there will now be a lot of questions over how Microsoft intends to develop the service going forward. There are other new developments at Microsoft that point to an increasing focus on light, cloud-based enterprise services that have their roots in consumer popularity. In addition to Yammer, which has been likened to a private Twitter or Facebook for businesses, Microsoft recently officially completed its $8.5 billion acquisition of Skype, and has been updating its Azure cloud platform, adding new features such as Twilio integration.

The Yammer deal also puts Microsoft further into the game of developing social media services specifically for enterprises, an area where companies like Oracle, Salesforce and IBM have been actively playing, too. But it will be interesting to see how it turns this new focus on social media services into a solidly profitable part of its larger business. As it has had to do with Skype, Microsoft will now face the challenge of figuring out how to monetize Yammer. Yammer reportedly currently has 4 million registered users, but only about 20 percent of those pay for premium services; the rest get the service free. With Skype, Microsoft also has the challenge of making more money out of users who use that free calling service without charge — the vast majority of users. Last week, it started to introduce new advertising services as part of its strategy, and this may be one direction that it decides to take Yammer, too.

Here is the press release:

Microsoft Corp. and Yammer Inc. today announced that they have entered into a definitive agreement under which Microsoft will acquire Yammer, a leading provider of enterprise social networks, for $1.2 billion in cash. Yammer will join the Microsoft Office Division, led by division President Kurt DelBene, and the team will continue to report to current CEO David Sacks.

“The acquisition of Yammer underscores our commitment to deliver technology that businesses need and people love,” said Steve Ballmer, CEO, Microsoft. “Yammer adds a best-in-class enterprise social networking service to Microsoft’s growing portfolio of complementary cloud services.”

Launched in 2008, Yammer now has more than 5 million corporate users, including employees at 85 percent of the Fortune 500. The service allows employees to join a secure, private social network for free and then makes it easy for companies to convert a grassroots movement into companywide strategic initiative.

Yammer will continue to develop its standalone service and maintain its commitment to simplicity, innovation and cross-platform experiences. Moving forward, Microsoft plans to accelerate Yammer’s adoption alongside complementary offerings from Microsoft SharePoint, Office 365, Microsoft Dynamics and Skype.

“When we started Yammer four years ago, we set out to do something big,” Sacks said. “We had a vision for how social networking could change the way we work. Joining Microsoft will accelerate that vision and give us access to the technologies, expertise and resources we’ll need to scale and innovate.”

The acquisition is subject to customary closing conditions, including regulatory approval.

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