Microsoft Must Integrate Yammer Without Stifling Its Innovation: Analysts

Analysts generally, with one notable exception, think it makes sense for Microsoft to have acquired Yammer for $1.28 billion. But they warn Microsoft to preserve Yammer’s culture and focus on independent innovation.

Industry analysts largely applaud Microsoft€™s $1.28 billion acquisition of enterprise social networking vendor Yammer, but worry that what makes Yammer a unique and popular social network may be lost as it€™s folded into Microsoft€™s other workplace productivity software.

Microsoft and Yammer stepped forward June 25 to say that Yammer had agreed to the acquisition 10 days after media reports said the acquisition was practically a done deal.

Yammer lets individuals sign up to use its service to communicate with co-workers and others in a social networking environment similar to what consumers enjoy on Facebook. Businesses can pay for premium services such as a management console and data analytics. The acquisition gives Microsoft a piece of the growing market for enterprise social media, following the lead of, Oracle, SAP, VMware and IBM in getting into enterprise social via acquisitions.

€œThink of Yammer as a fundamental part of our Office family,€ said Microsoft CEO Steve Ballmer at a news conference announcing the deal. Yammer will operate within Microsoft€™s Office division.

But among Yammer€™s best attributes are its ease of use and ease of deployment, which might be lost when Microsoft carries out it plans to integrate Yammer into Microsoft€™s workplace productivity tools such as Office, Exchange, Outlook or SharePoint.

Daniel Chalef is CEO of KnowledgeTree, which delivers document management software to businesses in a software-as-a-service model. A Yammer user himself, Chalef says Yammer installs quickly and is easy to manage and pay for, something he can€™t say for large Microsoft enterprise deployments such as SharePoint.

€œIf Yammer becomes as complicated to customize and implement in an organization as SharePoint is, that€™s going to become a major challenge,€ said Chalef.

Ballmer made a point of saying that Yammer will also remain a standalone product, but Chalef wonders whether Microsoft will invest in future innovation in Yammer; he€™s seen it happen in other situations where core product innovation is neglected.

€œThe standalone versions of the product do not see the type of incremental and constant innovation that the more integrated applications see because of the desire to drive the customers towards the integrated suite because that€™s where the profit is,€ he said.

Chalef also lamented the €œconvoluted€ pricing his company experiences with its SharePoint and Office 365 services. Yammer, meanwhile, offers a basic service for free with pricing for a business account at $5 per user/month, enterprise service at $15 per user/month and a suite of premium services at $79 per user/month.

One analyst highly critical of the deal said Microsoft paid too much for Yammer and is late to the game of enterprise social networking behind companies such as and Oracle.

€œThis would have been a great acquisition if they paid $50 million or $100 million at most. It just doesn€™t make sense,€ said Trip Chowdry, managing director of equity research at Global Equities Research.

Microsoft€™s tardiness in getting into enterprise social media is part of a pattern for the company, following its late arrival in the search business, Chowdry said. Google lead the search business for years while Microsoft€™s MSN Search languished until the company came out with Bing in 2009. Likewise in mobile, Microsoft is a distant third with Windows Phone behind Google Android and Apple iOS.

Now Microsoft€™s plan to integrate Yammer with Office and other workplace software makes Yammer just one feature within a large software ecosystem, he said.

€œ[Yammer] is a feature enhancement for Microsoft. You don€™t spend $1.2 billion to add a feature,€ Chowdry said.

But other observers think that enterprise social networking is such a new trend, that nobody is late to the market.

€œThey are getting into enterprise social media behind its direct competitors, but I don€™t think the market is so mature that it€™s too late,€ said Charles King, principal analyst with the research firm Pund-IT.

Integrating Yammer with Microsoft€™s office productivity suite (Word, Excel, Outlook, etc.) makes perfect sense, King said, especially given how deeply the Windows operating system and that software are embedded in the global workplace.

And rather than being late to the game, Microsoft has instantly jumped into a top position in the enterprise social market by acquiring Yammer, which was already one of the major players, said Rob Koplowitz of Forrester Research.

€œI think Microsoft has moved itself into a leadership position, a very strong position within enterprise social,€ Koplowitz said.

Editor€™s Note: This story has been revised to reflect the correct spelling of the name of Forrester Research's Rob Koplowitz.