Why Microsoft bought Yammer: 3 theories

In a bid to give its staid image a jolt of cool, the software giant snaps up a red-hot business-networking platform for $1.2 billion in cash.

By TheWeek.com Jun 26, 2012 4:29PM

Image: Man sitting at dining table with financial advisor (© Corbis)After weeks of rumors, Microsoft (MSFT) confirmed Monday that it is purchasing business startup Yammer for $1.2 billion.

Yammer bills itself as a "private" social network that allows companies to collaborate on projects, kind of like a combination of Google Docs (GOOG) and a private Facebook (FB) exclusive to businesses, in which employees create profiles, activity streams, discussion forums, microblogs, wikis, and more.

But Microsoft has so far failed to describe exactly what it will do with its prized new acquisition, and rumor has it that the company is already working on OfficeTalk, its own Yammer-like product. (Microsoft owns and publishes Top Stocks, an MSN Money site.)

Why, then, would Microsoft shell out more than $1 billion for the start-up? Here, three theories:

1. Microsoft needs younger brands to refresh its image 
Microsoft is buying Yammer for some of the same reasons it bought Skype, says Mary-Jo Foley at ZDNET: "It needed a cooler brand." Before Skype, Microsoft had its own video-chat technology called Lync, but the brand had little cachet. Yammer has the kind of buzz Microsoft wants, relying "largely on word of mouth" to become an essential product used by more than 200,000 companies worldwide, says Michael Liedtke of the Associated Press. Clearly, Microsoft is hoping Yammer will give its public image a jolt of cool.

2. Microsoft needs to get into the business of social networks
Microsoft was lagging behind competitors in terms of enterprise-level social networking, where Oracle, Salesforce, and IBM have long been a step ahead. In that sense, this deal makes "complete sense," says Jolie O' Dell at VentureBeat. Yammer will become part of the Microsoft Office family, along with Word, Excel, Entourage, and more, ensuring that those products remain workplace staples. Yammer has more than 5 million corporate users, and Microsoft knows that such networking applications are the next frontier. The tech giant needs a foothold in this market.

3. Microsoft may use Yammer for advertising
Microsoft's big challenge will be figuring out how to use Yammer to make money, says TechCrunch. Only 20% of Yammer's millions of registered users pay for premium services -- the rest use Yammer for free. Microsoft has a similar problem with Skype, and just last week decided to "introduce new advertising services as part of its strategy." Slapping ads inside the social networking platform "may be one direction that it decides to take Yammer, too."

More from The Week

Jun 26, 2012 4:45PM
You want to really know why they bought em? Because they could.
Jun 27, 2012 2:27PM
None of the reasons are convincing enough from enterprise perspective. I still wonder if they would generate enough money by Ads. Look at bing, it is a great search/decision engine, but it cannot generate the money.
Jun 26, 2012 5:49PM
It's already built and is expanding a platform to replace RIMM in the enterprise.
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