July 5, 2012

More Talk Less Noise – Microsoft Acquires Yammer

Ash Sethi – Analyst, MergerTech 


It’s confirmed.  It wasn’t a coding error on an Excel model by someone at Microsoft that put a $1.2 billion dollar check in the hands of Yammer CEO David Sacks.  Microsoft really did value the enterprise social client, pinned at $600 million during its last funding round in February, at 50x 2011 revenue.

Looking at Microsoft over the past twelve months, the acquisition of Skype, launching the Windows Store, releasing its own tablet just last week, and preparing the launch of Windows 8, Microsoft is clearly sparing no expense trying to adapt and get ahead of paradigm shifts in the technology sector.  So debating whether or not Microsoft overpaid and by how much is to overlook a much bigger picture.

SAP, Oracle, and Google have all been developing enterprise oriented social networks which they are integrating into their product lines, though Microsoft hasn’t been able to get as much traction on its SharePoint collaboration server as it would like.  Yammer on the other hand has a very efficient B2B customer acquisition model and for Microsoft, fills a genuine user gap with a constantly expanding list of major Fortune 500 clients like Deloitte, 7-Eleven, Ford, eBay, LG, and Vodafone.  While Yammer’s revenue from 2011 was only $25M, year over year growth exceeds 130%, and the ability to mass consumerize Yammer’s enterprise software across a very large customer base could be a serious coup for Microsoft.

The enterprise social software market is currently underdeveloped but has huge potential with wide-reaching business applications.  Firewalled networks that allow office working groups to streamline communications and collaborate are viewed by many as a Web 2.0 replacement for email and traditional instant messaging clients.  Other add-ons to these programs like task and content management mean enterprise level social software isn’t just a novelty add-on with greater security than traditional consumer social software.

Most social software vendors had strong double digit growth last year, including Portland, Oregon based Yammer competitor Jive Software whose shares are up over 36% from its IPO last December and currently trading at 13x revenue.  Confidence in Jive and Yammer are not merely both validations of the social enterprise software market but signaling that for the time being, market-share and revenue traction matters as much if not more than overall revenue.  For the foreseeable future, we will see a greater number of cloud based enterprise software valuations with increasing correlation to market-share and client acquisition over revenue.