Questions About Microsoft's Acquisition of Yammer

For years, NewsGator has been waiting for the phone to ring, but this week we officially found out it was Yammer that got asked to the prom.

Microsoft is buying Yammer for $1.2 billion in a transaction rumored for more than a week but confirmed Monday. It does seem like a snub, given that NewsGator has been a much closer partner to Microsoft and much more committed to Windows and SharePoint.

NewsGator CEO J.B. Holston insisted in an interview that he is not letting it get him down. "Would my shareholders have been happy if they came to us with a $1.2 billion offer? Sure, but they didn't, and that's fine," he said. Holston said he got a briefing from his Microsoft contacts Monday night that reassured him about the future of the partnership and the opportunities that still lie ahead.

Microsoft told him NewsGator was its "partner on social, and we want you to be there for the long haul," Holston said.

Originally known as a creator of RSS news reader software, NewsGator came into the enterprise market with Social Sites for SharePoint, a product that turned SharePoint into a full-featured enterprise social network. When Microsoft added additional social features to SharePoint 2010, NewsGator managed to leapfrog a few steps ahead, playing the nimble startup while Microsoft took care of the heavy duty platform-level plumbing.

Earlier this year, when Microsoft began signaling that it was ready to invest in enterprise social software, it was easy to think that strategy might lead to an acquisition--most likely of NewsGator. After all, NewsGator was the social software firm that embraced the Microsoft platform most whole-heartedly.

Instead, Microsoft was attracted to a cloud software product that is not built on Microsoft technologies at all, aside from offering some SharePoint Web Part components that can be used to embed Yammer functionality into a SharePoint site. Microsoft said it plans to allow Yammer to maintain a multi-platform focus that will allow it to integrate with many enterprise products, not just SharePoint and other Microsoft technologies. Yammer is offered only as a cloud service and it favors relatively lightweight, Web-based methods of integration. Microsoft seems to have decided that's a good thing.

Microsoft CEO Steve Ballmer also stressed his admiration for the viral sales model Yammer follows, where employees can sign up for a free account and start using the service right away. When that works well, they often convince their companies to sign up as paying customers, buying access to administrative tools and other premium features.

[ Should an enterprise social network be mobile first? DoubleDutch Introduces Free, Mobile Enterprise Social Network. ]

When the acquisition was announced, Constellation Research Group analysts R. "Ray" Wang and Alan Lepofsky said they were somewhat surprised that NewsGator was passed over, given that it offers a richer social platform than Yammer has delivered to date. However, Lepofsky noted that "every NewsGator customer is already a SharePoint customer," so buying NewsGator would have brought Microsoft new technology but not new customers.

Holston said that's also the impression he is getting. "This was really all about buying a freemium business model--that, more than any other attributes of the business," he said.

That's not so bad for NewsGator, he claimed. "Yammer has been a great lead source, and to the degree that this will get many more folks playing with enterprise social and thinking of Microsoft as a provider of enterprise social, generally that's a good thing for us. The important thing for us is Microsoft has gone out of their way to reaffirm the partnership going forward."

Like many of Yammer's competitors, NewsGator has often tried to capitalize on the discomfort some IT administrators have toward Yammer's business model or cloud computing in general. Holston said NewsGator does about 40% of its business "in the cloud," although most of those customers are hosted on dedicated rather than multitenant instances of the software. (In other words, not "true" cloud computing by the definition of many purists). Holston said many of NewsGator's customers prefer to either deploy on premises or in a "private cloud" that they don't share with other organizations.

Meanwhile, drawing grand conclusions about the future of SharePoint from the Yammer acquisition is misguided, Holston said. While Microsoft may shift some of its attention to promoting Yammer as a preferred enterprise social networking product, Microsoft also has enough resources to continue to invest in social features for SharePoint.

"We're moving away from horizontal gap-filling for SharePoint anyhow," Holston said. "Our view on the market for a while now has been that the big guys are going to commoditize certain features and functions. For example, microblogging is going to be just a feature of the big platforms."

SharePoint will provide those basic building blocks, as will Yammer and other platforms, meaning that the next wave of opportunities will be in more vertical applications that take advantage of the social platforms, Holston said. NewsGator is working on a series of those applications, starting with social learning, he said. "We were having to make that pivot regardless of this--although maybe this is making us talk about it a little sooner."

Follow David F. Carr on Twitter @davidfcarr. The BrainYard is @thebyard andfacebook.com/thebyard

Every company needs a social networking policy, but don't stifle creativity and productivity with too much formality. Also in the debut, all-digital Social Media For Grownups issue of The BrainYard: The proper tools help in setting social networking policy for your company and ensure that you'll be able to follow through. (Free with registration.)