Why Yammer Deal Makes Sense

Yammer has agreed to a $1.2B acquisition by Microsoft, as was rumored yesterday.

The work media, or enterprise social networks, marketplace is exploding. In December, Forester forecasted that work media will grow at a compound annual rate of 61% through 2016, reaching a market size of $6.4 billion, compared to $600 million in 2011. And with its current offerings – not withstanding the dominance of Sharepoint as a document repository, and the company’s numerous other enterprise software products – Microsoft did not have a horse in the race.

Yammer raised $85 million in February in a round valuing the company at more than $600 million, and has raised $142 million in all. So the investors would like to see a successful IPO, or a sale of $1B at sometime in the not too distant future. However, the recent Facebook IPO has somewhat dimmed the prospect of an IPO for tech companies in the near term.

My bet is that Microsoft has been dancing with Yammer for some time, trying to fill the empty spot in their enterprise jig saw puzzle, and all the while Yammer has been fending them off, biding their time. But the stars came into alignment: Yammer perhaps saw the IPO options fading somewhat and Microsoft finally piled enough cash on the table to sweeten the deal.

Yammer might have seen offers from a number of other companies in recent years, as other enterprise players were rolling up competitors, like the SalesForce buy of Socialcast, and the recent Citrix acquisition of Podio. I wouldn’t be at all surprised to find out that Oracle is on the hunt, and SAP has made a dramatic splash in this market in the past few months, albeit without making an acquisition, yet. Yammer might have looked at the rapid consolidation in the market by multibillion-sized competitors and deemed acquisition by Microsoft as one of the least-risky paths to potential market dominance. A Yammer/Sharepoint integration is a potential killer app for the market today, with hundreds of millions of seats to be sold.

And – incidentally – the Enterprise 2.0 conference is next week, which is the cornerstone event for the work media market, and someone mentioned to me (I haven’t substantiated it) that the Yammer and Microsoft booths are located side by side in the trade show hall. Is that coincidence?

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