Content Matters

This week’s acquisition of enterprise social media provider Yammer by Microsoft (MSFT) for $1.2 billion raised a lot of eyebrows. While specific revenue figures are not available for Yammer, I’ve seen estimates of Yammer revenue in the $10-20 million range. Yammer peer Jive (NASD: JIVE) reported revenues of $77 million for the year ending 12/31/2011, with a 4^th quarter run rate of nearly double that.

Clearly Microsoft didn’t buy Yammer based upon its direct revenue potential. Instead, the acquisition was an acknowledgement of where the market is heading, and how Microsoft desperately needs to reposition itself for the future.

For those who’ve never used it, Yammer is best thought of as “Twitter for the enterprise”. It’s a great way of sharing information among workgroups or departments. Microsoft, of course, has long dominated communications inside the enterprise, with Exchange and Outlook. But as communication shifts away from email, and as the enterprise becomes more mobile, that market position is at risk.

Microsoft today is at risk of losing the desktop to the iPad while the Office document market has seen inroads by Google and other cloud-based services. Installed software, upon which Microsoft’s empire was built, is slowly, yet steadily being displaced by SaaS models. They’ve struggled to gain a foothold in mobile. In many ways, their future seems dim.

While Yammer alone won’t reverse that course, it does provide an immediate platform for Microsoft to remain relevant in mobile communications within the enterprise.  As more and more users rely upon devices that do not run Windows and sit outside the firewall, tools like Yammer give Microsoft a way to remain relevant.

There are many other ways in which Microsoft can play in this market. Its acquisition of Skype was one. The market for systems to allow the enterprise to manage today’s BYOD (bring your own device) world is wide open. And while, I’d initially thought RIM (NASD: RIMM) was best positioned to adapt its Blackberry Enterprise Server to the Mobile Device Management (“MDM”) space, their inability to recognize and adapt to market changes have left a huge opening for Microsoft.  In fact, I wouldn’t be surprised to see Microsoft acquire an MDM provider like AirWatch or Zenprise in the near future.

The $1.2 Billion price tag may seem high for a company with low 8-figure revenue, but Microsoft is sending a clear message here that it understands the dramatic changes that mobile and the cloud are driving, and is looking for ways to remain relevant into the future.