This story was written by Keith Dawson for UBM DeusM’s community Web site Business Agility, sponsored by IBM. It is archived here for informational purposes only because the Business Agility site is no more. This material is Copyright 2012 by UBM DeusM.

Microsoft to Buy Yammer for $1.2B

Startup could bring enterprise social networking cred to the world's largest software company.

Solid rumors say Microsoft will buy enterprise social networking company Yammer. The move would put Microsoft firmly back in the enterprise competition against Salesforce.com and Oracle.

Business Insider first aired the takeover rumor last Wednesday evening. By Friday Bloomberg and the Wall Street Journal were concurring, still without an official announcement from the two companies.

Yammer is a 4-year-old company with about 300 employees, with total investments of $142 million. It claims to have more than 4 million corporate users in 200,000 companies, in 85 percent of Fortune 500 companies. Only about 20 percent of those users pay for the service.

In 2008, Salesforce.com CEO Marc Benioff had said that he was interested in buying the then-nascent Yammer. Instead, Salesforce.com built its own knockoff service, Chatter.

Yammer's CEO is ex-PayPal executive David Sacks, who coincidentally is throwing an elaborate 40th birthday bash for himself -- so a pre-IPO payday would no doubt be welcomed.

There is some skepticism about the acquisition evident in the analyst community. Here's analyst Trip Chowdhry of Global Equities Research, quoted in eWeek: "If they acquire Yammer, it wouldn't really do anything for Microsoft. It's just like their lack of a mobile strategy. The market has already been taken." And from the front lines of the Silicon Valley cloud-and-social mafia, the below tweet comes from the CEO of Box.

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But other observers are declaring a Yammer acquisition to be an excellent move for Microsoft, if it hopes to compete with the other players in the social CRM space: Google, IBM (sponsor of Business Agility), Jive Software, Oracle, SAP, and VMWare (after its acquisition of Socialcast). Here is Matt Weinberger writing in ServicesAngle.com:

Yammer has proven (if somewhat limited) integration with the Microsoft ecosystem and serious enterprise adoption. Combine that with... Microsoft Office 365 cloud productivity and Microsoft Dynamics CRM, and the synergies start to become apparent. This is absolutely critical, as Microsoft's chief rivals in the CRM arena -- Salesforce.com and Oracle -- [are racing] to see who can integrate more social tools and services more deeply into their portfolios. ... [Microsoft's purchase] makes more sense than Facebook paying $1 billion for Instagram.

Microsoft's real challenge will be in integrating Yammer into its product line without killing the lessons Yammer has to teach the larger company about development agility and the freemium business model. Alex Williams covers these points in a long post on the state of the CRM market at Services Angle.