Why Didn't Make This No-Brainer Buy?

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Give (NYSE: CRM  ) credit for being inventive. Last night, cloud computing's poster child rolled out a public version of its Chatter social network in two Super Bowl ads featuring the game's halftime stars, The Black Eyed Peas.

The ads themselves didn't say much, referring only to broad claims of allowing teams to do "impossible things" together. That's a good sound bite, but it doesn't reflect what is trying to do with Chatter.

Put simply, it's a private room for company employees to share links, photos, files, thoughts, etc. Think of it as a specialized form of Twitter or Facebook that's one part meeting room, one part water cooler, and one part whiteboard.

Interestingly, this isn't a new idea. Yammer has been providing much of the same functionality since the company's founding in September of 2008. So much so that Yammer recently created a video in which it amusingly tags CEO Marc Benioff as a "copycat."

The skewering refers back to Yammer's debut at the TechCrunch50 competition two years ago. Benioff, a judge, is quoted in the video as saying he'd invest in Yammer and that he could see buying the product. Cookie jar, meet hand.

So far, I've only seen demos of Chatter. But I'm a regular user of Yammer -- The Motley Fool pays for the service -- and I can see the parallels. All the reasons lists for adopting Chatter apply equally to Yammer.

And I'm not the only one who thinks so. In a December interview with TechCrunch founder Michael Arrington, Yammer CEO and founder David Sacks said his company is on track to generate $10 million in 2011 revenue from a list of more than 1,000 paying clients, including Cisco (Nasdaq: CSCO  ) , Alcatel-Lucent (NYSE: ALU  ) , and us Fools.

Knowing all this, I've got to wonder why Benioff didn't simply buy Yammer. He's right; Chatter-Yammer is exactly what should offer customers. At Yammer's $10 million run rate, probably could have struck a deal for anywhere between $50 and $100 million in cash -- peanuts when you consider had more than $750 million in cash and short-term investments as of Oct. 31.

We don't know why Benioff chose to build rather than buy. Yammer may have rebuffed offers. Or maybe wanted a platform designed from the ground up to work with its Apex programming language and platform.

Either way, I'm expecting more of these types of add-ons as grows out of its historic niche as a supplier of online sales support tools into a provider of business software available online. The yin to NetSuite's (NYSE: N  ) yang, you might say.

But as the guy who recommended our Motley Fool Rule Breakers subscribers buy shares of, I also don't want to guess. So, earlier today I sent an email to Benioff asking about Yammer and his overall strategy for creating value at If he responds, you'll see it here first.

In the meantime, tell us what you think about, its Super Bowl ads, Chatter, and Yammer using the comments box below. You can also rate in Motley Fool CAPS.

Interested in more info on the stocks mentioned in this story? Add Alcatel-Lucent, Cisco Systems, NetSuite or to your watchlist.

Motley Fool Alpha owns shares of Cisco. is a Motley Fool Rule Breakers recommendation. Try any of our Foolish newsletter services free for 30 days.

Fool contributor Tim Beyers is a member of the Rule Breakers stock-picking team. He didn't own shares in any of the companies mentioned in this article at the time of publication. Check out Tim's portfolio holdings and Foolish writings, or connect with him on Twitter as @milehighfool. You can also get his insights delivered directly to your RSS reader. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a bull call spread position in Cisco. The Fool is also on Twitter as @TheMotleyFool. Its disclosure policy just wants to get along.

Read/Post Comments (5) | Recommend This Article (5)

Comments from our Foolish Readers

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  • Report this Comment On February 08, 2011, at 10:47 AM, trackster2095 wrote:

    I don't know why Benioff didn't buy Yammer either but I do know that Chatter is pretty awesome. I've been a Salesforce user and fan for about two years now and recommend it to all my clients because the platform finally frees companies from having to mold their operations to standard software packages. For someone who has been through every ERP and application since the 1980's that is really mind-blowing, not to mention liberating as heck . . . Anyway, I LOVED the Baby Peas concept, the timing and everything about those Superbowl ads. My $.02!!

  • Report this Comment On February 08, 2011, at 12:21 PM, riteorrong wrote:

    They bought GroupSwim instead for a lot less money. What would CRM have gained by buying Yammer instead? Your point about the platform is likely correct. While it is highly unlikely that they used APEX to build Chatter, most SaaS companies need to run on a single platform in order to fully leverage the economies of scale that are central to their cash flow/earnings model. This is why you see SaaS companies do small niche acquisitions and often kill the platform of the company they acquire.

    Building a Facebook clone is simple. Yammer was a early leader, but who cares? They will get their day in the sun. Yammer, SocialText and their ilk will likely be bought this year by the big boys (ORCL, SAP, etc).

  • Report this Comment On February 08, 2011, at 5:33 PM, AmandaB12 wrote:

    Here's the deal... if you aren't a Salesforce customer, Chatter is essentially a "SharePoint lite": a place for employees to store files, upload links, etc. You only get the true value of the tool (SF integration) at the customer-level... which is what their long term strategy is.

    So - what if you aren't a SF customer? What if your company relies on Siebel or SAP or MSCRM or SharePoint? The end game for many of these companies - SF, Jive - is to put you on their "stack".

    On the other side of the fence, tools like Yammer and Socialcast, are okay but offer very limited system integration capabilities - so they become "just another tool" you have to use, in addition to email, IM, etc...

    Check out Neudesic Pulse - agnostic system integration across the board plus a standalone UI, supports all major mobile platforms, invite external users - like customers - to the conversation, ideation feature, communities... much more than microblogging!

  • Report this Comment On February 09, 2011, at 6:14 AM, fxfxfx wrote:

    wrong question. Instead you shoulkd ask: WHY should anyone buy this stock at this extremely inflated price? P/E of 250, Forward P/E 100, PEG well above 4(!!)

    Chatter may all be great and nice but what will it add to the topline and bottomline? I have red research that prjects (in their most bullish cases) that CRM will double its market share to about 30%. great, but even if that would mean a four-fold invrease in profits, you will still have a P/E of 50-60!

    This is dotcom bubble reloaded - good luck with that one. Rule breaker? maybe. But with crm you break a major rule of investing - risk is a function of the price you pay for an asset. At 136$, crm is as toxic as these AAA-rated CDO squared that were oh so popular 4 years ago

  • Report this Comment On February 09, 2011, at 10:53 AM, emschles wrote: and its forward thinking management, employees and partners whose efforts have sparked the revolution that is happening NOW; even as I type this response, should be lauded for its accomplishments. However, while having a 'great' idea; one that resonates with all of us and becomes just plain common sense should be celebrated, its the execution on that idea that is the true measure of a game changing technological, financial and sociological success that is the shift that benefits us all. That is the true accomplishment can beat its chest about - execution.

    In order to reinforce that momentum and truly democratize the availability and use of powerful enterprise class SaaS, studentforce endeavors to place the platform in the hands of those who truly know how it can be used - students. Delivering on Don Tapscott's 1998 prognostication "… that the most revolutionary force for change is the students themselves. Give children [students] the tools they need and they will be the single most important source of guidance on how to make the schools relevant and effective” is a tall order made possible by the platform; and, more recently, the introduction of Chatter - a secure medium by which students collaborate with one another; faculty do the same; and, each group shares with one another. Student Chatter + Faculty Chatter creates a dimension of conversation and collaboration never before available.

    Recently published studies report that faculty (80%) use social medium; and, a growing number (30%) use collaboration tools, available as a service to communicate with their students incorporated into lesson plans. We already know that students (and others) have already enthusiastically embraced social medium and its growth is accelerating throughout the world. But there still exists a disconnect between faculty, students and staff on campus. As the further 'commercialization' (by no means a bad thing) of collaboration platforms evolve it seems to be at the expense of PRIVACY. That will inhibit the execution of a great idea. Ironically, security and privacy must be intact so that collaboration and sharing can occur. Think about it - strange; right?

    With Chatter layered within the architecture, we now have a platform that is secure; private where necessary; and, holds the promise of exponentially increasing the transfer of ideas …. so the execution of those ideas can occur. Chatter also " … brings the data alive" by automating the notification of important events as they occur and delivering them specifically relevant to the tasks they are associated with. And its MOBILE; available on my Blackberry, iPhone, iPad and yeah - future mobile devices.

    What better audience is there to take a wonderful idea (SaaS + Collaboration + Mobile); effectively executed for businesses, non profits and individuals than those who have grown up using these tools? And, by giving students " … the tools they need" a generation of productive, knowledge seeking students will be able to execute on the ideas that have not yet been thought of as they become citizens participating in business, teaching and life long learning.

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