Arik Hesseldahl

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Microsoft Confirms Worst Kept Secret Ever, Buying Yammer for $1.2 Billion

Microsoft just confirmed what has to have been the mostly widely rumored acquisition in recent memory: It will buy the social enterprise software start-up Yammer for $1.2 billion.

Rumored for awhile, word of the deal started to leak on Twitter and elsewhere about two weeks ago. Buzz picked up considerably around the same time that Yammer CEO David Sacks held a huge 40th birthday party at a rented mansion in Southern California.

Yammer will become part of the Microsoft Office Division, run by Kurt DelBene, though the Yammer team will continue to report to Sacks. The plan calls for Yammer to stick to its current track of developing its own service, while Microsoft pushes ahead to nudge further adoption alongside SharePoint, Office 365, Microsoft Dynamics and Skype.

Initial speculation about the deal pushed shares of Jive, Yammer’s primary rival, up considerably. Following the standard “buy on the rumor, sell on the news” pattern, now that the rumor has become news, shareholders are bailing out and Jive shares are down about 5 percent to $19.45 as I write this.

Launched in 2008, Yammer has been the most promising of the social enterprise companies not named Jive. Last February, it raised a fifth round of funding — $85 million led by Draper Fisher Jurvetson, at an implied valuation of about $1 billion $600 million.

Update: I’ve just heard from someone familiar with the February funding round that Yammer was valued at $600 million, or about half of today’s purchase price. No wonder Yammer’s employees were so giddy they couldn’t contain themselves at The Creamery.

Meritech Capital Partners, Jeff Skoll’s Capricorn Investment Group and Khosla Ventures also participated in that round. Prior investors include Charles River Ventures, Emergence Capital, Founders Fund, the Social+Capital Partnership and US Venture Partners; the angel investors are Bill Lee, Max Levchin and football great Ronnie Lott.

Coming as it did on the heels of Jive’s late 2011 IPO, conventional wisdom suggested that Yammer would follow and go for an IPO of its own.

But after that funding round, Yammer followed none of the usual steps associated with a pre-IPO company: While Sacks is a former PayPal executive, there was no effort at Yammer to recruit additional directors with public company experience.

The first few paragraphs of the official announcement are below. There was one acquisition — the British software firm OneDrum — but it was pretty small. There was no chatter about bankers or an S-1 filing with the U.S. Securities and Exchange Commission. Lacking all of that, it was pretty clear that a buyout was the more likely scenario.

Yammer can’t have ended up in better hands: A cash-rich owner with time on its hands. For all its vaunted popularity among large companies — you can’t have a conversation about it without running into its well-worn stat that it has five million users at 85 percent of the Fortune 500 — Yammer has a famously difficult time converting its free users to paid users. More often than not, a handful of employees will adopt it, with varying levels of success in integrating it into their workflow. Many just experiment with it and then never take to it.

Those who do like it usually find that the free version is sufficient. By Yammer’s own admission, its conversion rate is about 20 percent. That means that, of those five million users, a mere one million are paid users.

Jive, on the other hand, lets companies try its services out free for 30 days, then they have to start paying. While it doesn’t disclose the total number of individual users, it has 676 companies using its service and software, all of them paid.

Microsoft to Acquire Yammer
June 25, 2012
Microsoft extends cloud services with best-in-class enterprise social networking.

Here’s the official announcement:

REDMOND, Wash., and SAN FRANCISCO — June 25, 2012 — Microsoft Corp. and Yammer Inc. today announced that they have entered into a definitive agreement under which Microsoft will acquire Yammer, a leading provider of enterprise social networks, for $1.2 billion in cash. Yammer will join the Microsoft Office Division, led by division President Kurt DelBene, and the team will continue to report to current CEO David Sacks.

“The acquisition of Yammer underscores our commitment to deliver technology that businesses need and people love,” said Steve Ballmer, CEO, Microsoft. “Yammer adds a best-in-class enterprise social networking service to Microsoft’s growing portfolio of complementary cloud services.”

Launched in 2008, Yammer now has more than 5 million corporate users, including employees at 85 percent of the Fortune 500. The service allows employees to join a secure, private social network for free and then makes it easy for companies to convert a grassroots movement into companywide strategic initiative.

Yammer will continue to develop its standalone service and maintain its commitment to simplicity, innovation and cross-platform experiences. Moving forward, Microsoft plans to accelerate Yammer’s adoption alongside complementary offerings from Microsoft SharePoint, Office 365, Microsoft Dynamics and Skype.

“When we started Yammer four years ago, we set out to do something big,” Sacks said. “We had a vision for how social networking could change the way we work. Joining Microsoft will accelerate that vision and give us access to the technologies, expertise and resources we’ll need to scale and innovate.”

The acquisition is subject to customary closing conditions, including regulatory approval.


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