Analysis

Why Microsoft bought Yammer: 3 theories

In a bid to give its staid image a jolt of cool, the software giant snaps up a red-hot business-networking platform for $1.2 billion in cash

After weeks of rumors, Microsoft confirmed Monday that it is purchasing business start-up Yammer for $1.2 billion. Yammer bills itself as a "private social network" that allows companies to collaborate on projects, kind of like a combination of Google Docs and a private Facebook exclusive to businesses, in which employees create profiles, activity streams, discussion forums, microblogs, wikis, and more. But Microsoft has so far failed to describe exactly what it will do with its prized new acquisition, and rumor has it that the company is already working on OfficeTalk, its own Yammer-like product. Why, then, would Microsoft shell out more than $1 billion for the start-up? Here, three theories:

1. Microsoft needs younger brands to refresh its image Microsoft is buying Yammer for some of the same reasons it bought Skype, says Mary-Jo Foley at ZDNET: "It needed a cooler brand." Before Skype, Microsoft had its own video-chat technology called Lync, but the brand had little cachet. Yammer has the kind of buzz Microsoft wants, relying "largely on word of mouth" to become an essential product used by more than 200,000 companies worldwide, says Michael Liedtke of the Associated Press. Clearly, Microsoft is hoping Yammer will give its public image a jolt of cool.

2. Microsoft needs to get into the business of social networksMicrosoft was lagging behind competitors in terms of enterprise-level social networking, where Oracle, Salesforce, and IBM have long been a step ahead. In that sense, this deal makes "complete sense," says Jolie O' Dell at VentureBeat. Yammer will become part of the Microsoft Office family, along with Word, Excel, Entourage, and more, ensuring that those products remain workplace staples. Yammer has more than 5 million corporate users, and Microsoft knows that such networking applications are the next frontier. The tech giant needs a foothold in this market.

3. Microsoft may use Yammer for advertisingMicrosoft's big challenge will be figuring out how to use Yammer to make money, says TechCrunch. Only 20 percent of Yammer's millions of registered users pay for premium services — the rest use Yammer for free. Microsoft has a similar problem with Skype, and just last week decided to "introduce new advertising services as part of its strategy." Slapping ads inside the social networking platform "may be one direction that it decides to take Yammer, too."

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