Microsoft's Reported Yammer Deal Blasted by Analysts

News reports that Microsoft is about to acquire the Yammer enterprise social network company drew scathing reactions from industry analysts, who said that the deal would do nothing to improve the software giant’s growth prospects because it is getting into the market too late.

Microsoft is apparently making efforts to acquire enterprise social networking vendor Yammer, according to a report by Bloomberg.com, but several industry analysts say the potential move won't do anything to help give Microsoft new opportunities for vibrant market growth.

Microsoft may pay more than $1 billion, and a deal may be reached as soon as tomorrow, said one person, who declined to be identified because the negotiations are private," Bloomberg reported.

If the deal goes through, it would be pointless, said financial analyst Trip Chowdhry of San Francisco-based Global Equities Research. "If they acquire Yammer, it wouldn't really do anything for Microsoft," he said. "It's just like their lack of a mobile strategy. The market has already been taken."

Part of the problem, Chowdhry said, is that Microsoft is trying to bolster its offerings in the enterprise social networking market too late against innovative competitors such as Salesforce.com and Oracle Corp., which offer well-developed products that have good adoption rates among business users.

"They're late to the party," he said of Microsoft. "They should be doing things that no one else has been doing before. I don€™t think it makes sense."

Jonathan Yarmis, principal analyst with The Yarmis Group, agrees. "In some ways, it's about€¦time that Microsoft did this," he said. "The fact that they€™ve got to spend $1 billion [to add these capabilities] is in some ways an acknowledgement of a massive fail."

The potential deal would clearly highlight the disappointing adoption of Microsoft's SharePoint application, which has been touted by the company as a tool for enterprise collaboration, Yarmis said. "SharePoint is a rudimentary file-sharing application, and I don€™t care about what they say everybody is doing with it. At the end of the day, it is a file-sharing application and not an enterprise social network. That€™s why they are looking to buy Yammer. They had to go out and buy one because they didn€™t build one for themselves."

What the possible move does show, he said, is that Microsoft has "made an admission of failure and that they're actually going to buy something to fill this hole. They could have been building this all along.€

Yet even if the deal goes through, Yarmis said, it still won't position Microsoft as the No. 1 player in the enterprise social networking market.

"There is no category brilliance here," he says of Yammer's products. Yammer includes all the tools that competitors include, from micro-blogging capabilities to group functions to wikis and more, he said. "Yammer doesn't have superior features or anything over their competition, but Microsoft certainly gives them a distribution reach" if the deal is finalized. "For competitors like Jive, I can't imagine that this is a good day for them."

Another analyst, Rob Enderle, principal analyst of The Enderle Group, said Microsoft has typically had a rough time with these kinds of acquisitions in the past because the innovative developers who created the acquired products usually don't stick around.

"You acquire a firm that does what you want to do," Enderle said. "The key is retaining the people from that company. That€™s often been a problem for Microsoft. It€™s the people who have the skill sets for Yammer's products so they're going to have to figure a way to retain these people better."

Enterprise social networking applications have been adding several key features for businesses in the enterprise marketplace as of late, including giving employees the ability to collaborate without emails and meetings as well as the capability to share ideas in real time anywhere in the world. Yammer lets companies create secure, private social networks for their employees, bringing together features and user interfaces that are similar to Facebook and Twitter.

Yammer is used by more than 200,000 companies around the world, according to the company's Website, including DHL, LG, Nationwide Insurance, Ford Motor Co., Shell, Capgemini and Razorfish.

In April, Yammer announced that was adding new Yammer integration features with Microsoft's Dynamics CRM application.