Was Yammer worth $1.2 billion?June 25, 2013: 9:59 AM ET
One year later, it looks that way.
FORTUNE -- It's been one year since Microsoft announced it was acquiring Yammer, a social networking tool for companies, for a whopping $1.2 billion. The plan? Use Yammer's software as a social layer across Microsoft's products and keep the smaller, San Francisco-based company as independent as possible. Twelve months in, Microsoft still has plenty of integration work ahead of it. But the Redmond-based tech giant is also ready to tout some of what it's already managed to accomplish with Yammer. And what Yammer's been able to accomplish with Microsoft.
Yammer is still more-or-less independent, though its marketing department now reports to Redmond. (Microsoft is rumored to be in the midst of a much larger restructuring effort that's said to help focus the company on devices and services.) Yammer's office is housed in the same Mid-Market building that hot startups like Twitter and One Kings Lane call home. And founders David Sacks -- of PayPal (EBAY) fame -- and Adam Pisoni are still with the company."We realized we have a lot more in common with Microsoft than we thought," says Sacks, who is also the CEO of Yammer. He says one of his first conversations with Microsoft (MSFT) CEO Steve Ballmer, before the acquisition closed, made him realize Microsoft understood Yammer's consumer-led appeal and that the company was ready to move fast.
Indeed, Microsoft has worked with Yammer to add a social layer to its Dynamics CRM (customer relationship management) application and has started baking Yammer features into SharePoint, a collaboration tool, and Office 365, an online, subscription-based version of its popular Office suite of productivity apps. "We didn't have to rewrite code from scratch," says Jared Spataro, senior director for SharePoint product marketing at Microsoft. "We could start connecting with what they already had. And the Yammer team had strong points of view on what they were going to accomplish and how to get it done."
According to Spataro, the pricey acquisition made sense for Microsoft because Yammer enables it to get more social features integrated faster. Yammer was also attractive because its software is delivered via the cloud and direct to consumers, another direction Microsoft is trying to push toward. And Yammer moves fast -- both in the way it develops and delivers software -- an attribute the larger company was hoping to emulate. "The way their product has been developed -- the rapid innovation in the cloud, and releases every week -- that has not only continued but has been adopted by other parts of our cloud organization here at Microsoft," says Spataro.
While Yammer has impacted the way things are done at Microsoft, the acquiring company has also had its effect on Yammer, though it's mostly tried to keep its hands off and let things run as they always have. For example, Microsoft "simplified" the way Yammer is priced, cutting the number of payment packages from four to two (it also says it is committed to continue selling a standalone version of Yammer for customers who just want an enterprise social network). Yammer has continued to grow. Last month Microsoft said Yammer's sales grew 259% year-over-year, though it has not divulged actual revenue. Yammer now has nearly 8 million users, but the vast majority of them use a free version of the product. Customers include TGI Friday's and GlaxoSmithKline (GSK). Telefonica (TEF), a Spanish telecommunications player, has been a (paying) Yammer customer for several years and is a long-time Microsoft customer. "Our community was feeding back to us that they liked Yammer, and I wasn't inclined to change it," says Phil Jordan, group CIO for Telefonica. "Same with Office 365. We've always been a big Microsoft shop."
Of course, while Microsoft has staying power it (and Yammer) is facing a sea of small and large rivals. Salesforce.com (CRM), to name just one example, is the top CRM vendor and has its own social networking layer, called Chatter, built right on top. What's more, the jury's still out on how transformative these social networking tools are to begin with. While Facebook (FB) has taken off in the consumer world, companies don't necessarily want to pay monthly usage fees for a glorified Twitter feed. So there is still a lot of education that needs to take place around what these tools can really do to help make employees happier and more efficient.
Yammer was a successful exit -- $1.2 billion for a company that launched at a TechCrunch conference in 2008 ain't bad. But founders Sacks and Pisoni are startup guys at heart. They say they're happy, of course, but statistics show the vast majority of startup founders leave an acquiring company within two years of an acquisition. Product integration efforts aside, if Microsoft can figure out how to hold on to Yammer's core team for a while longer -- and infuse itself with more of the smaller company's fast-moving style -- then the $1.2 billion it paid may just turn out to be worth it.