Microsoft and Yammer: Why It Makes Sense… and Why it Doesn’t

It appears that Yammer will be acquired by Microsoft for $1.2B. That hasn’t been confirmed by either company at the time this blog was written. The Wall Street Journal seems pretty certain, citing “a person familiar with the matter.” The rumor leaked out because someone had loose lips in a coffee shop. It just goes to show, never talk shop in a public place in San Francisco or Silicon Valley. The place is crawling with bloggers.

I suppose for Yammer the benefit is obvious– a rich payday for founders, executives, and investors. For Microsoft, I’m not so sure. Here’s what I think about the deal.

  1. It does not validate the Social Enterprise since that happened a long time ago. A common theme is that a deal of this scale validates the market for Social Enterprise. Not really. What really validates the market is when customers spend money on products. ESG research already shows that IT is buying Social Enterprise products, so there’s your validation. Besides, this is not the first deal of its kind, it’s only bigger. Citrix recently purchased Podio and VMWare purchased SocialCast. Perhaps what has been validated is that established companies will pay huge amounts of money for 300 person startups.
  2. It makes sense for Yammer as a company…. If someone dangled a number north of a billion dollars for my small to mid-size software company, I’d take it. More to the point, Yammer lives in a crowded field with well heeled and established competitors like IBM, SAP, Citrix, and Oracle. Any one of these companies could eat Yammer for lunch and still have room for dessert. The number of potential suitors is also quite small. Outside of Cisco, the only top flight IT companies that might want to buy a Social Enterprise startup are HP and Cisco. Sure, second tier companies like Sage might be interested but not for a billion dollars.
  3. but not for everyone at Yammer. When we hear these huge numbers it’s easy to forget that not everyone benefits equally. Executives, founders, and investors will certainly do well. A few of the top people will make so much money that they can retire or become VCs themselves. For much of the rank and file, that’s not the case. Keep in mind that of the 300 or so people working at Yammer, at least 100 have been added this year and another 100 or so the year before. The later you come into the company the less you get when the company is acquired. It’s like showing up late for a party – most of the beer is already gone when you get there.
  4. The cultures are really different. Over the years, Microsoft has become quite corporate. That’s good. It’s what happens when you are a huge public company. They need to be a process-driven, buttoned up organization. Yammer is the complete opposite. They bring their dogs to work. For a lot of Yammer employees, the Microsoft culture will be the antithesis to Yammer. Yammer people won’t be hip anymore. They’ll be sell outs.
  5. I get why Microsoft would want a company in this space. Of the major software companies, Microsoft and HP are the only two that haven’t an entry in the social portal/enterprise social network/Facebook-for-the-corporation space. All their rivals do. They are also facing competition from the online file sharing companies such as Box.net and DropBox. These companies are going for Sharepoint’s jugular. Microsoft needed to get a complete solution ASAP.
  6. Why didn’t Microsoft just build it? They already have Sharepoint and Lync so how hard could it have been for them to do the rest of the work? Creating an activity stream doesn’t seem to be all that difficult given how many companies have added these to existing products. Microsoft already manages the corporate directory in millions of companies so creating social profiles seems like incremental work. When I was a software engineer, I used to hate when people would dismiss the amount of work needed to create software as SMOP (a simple matter of programming) but I just don’t see what the big deal is here. Oracle, SAP, and IBM did it along with a host of smaller companies. I’m betting it would cost much less than a billion dollars for Microsoft to make their own social portal.

From the point of view of founders and executives at Yammer, this is a great deal. They have the big payday they’ve been looking for plus some serious clout in the tech industry. Not everyone generates this much value for investors. Some employees of Yammer will eventually need to look for a new job and have only small payout to show for their work. Microsoft will be better positioned to compete with Oracle, SAP, and IBM but it will be very costly and absorbing Yammer might prove distracting. Many will be left wondering why they didn’t just build their own product a year ago and be done with it.

Topics: Enterprise Mobility