Microsoft (Nasdaq: MSFT ) is opening its pocketbook once again, this time to acquire enterprise social-networking company Yammer for about $1.2 billion. This follows Microsoft's biggest ever acquisition in May 2011 of Skype for a whopping $8.5 billion. Will Yammer really help Microsoft? Let's dig into the details.
What is Yammer?
Yammer is somewhat similar to social-networking site Facebook (Nasdaq: FB ) and Twitter, but it's used exclusively in a corporate environment. The cloud-based service allows employees to set up their own profiles, chat among themselves in forums, and receive streaming notifications about what their colleagues are doing. But what makes Yammer really special is that almost 85% of global Fortune 500 companies use it.
How does this help Microsoft?
Microsoft makes more than half of its annual operating income from its Office productivity software. And despite facing competition from Google (Nasdaq: GOOG ) in the form of Google Docs and other alternatives, its Office offering has held its ground.
However, the company has been lagging behind in the enterprise social networking (ESN) space, while Oracle (Nasdaq: ORCL ) , among others, has made big inroads into ESN, most recently through its announced acquisitions of Collective Intellect and Vitrue. salesforce.com (NYSE: CRM ) also expanded its ESN capabilities recently by acquiring marketing and social-media platform Buddy Media. The acquisition gives salesforce.com key enterprise social-networking capabilities and access to big customer names such as Ford and Hewlett-Packard.
For Microsoft, Yammer's highly popular enterprise social-networking platform can be used to enhance its Office software or to add to its existing enterprise collaboration offering called SharePoint. That program has some of Yammer's features, although its social-networking and document-sharing features remain largely unused by corporate clients, allowing Yammer to fill that gap. It will be interesting to see how exactly Microsoft integrates Yammer into its other offerings.
A Foolish conclusion
Yammer should strengthen Microsoft's software portfolio and should help boost the company's SharePoint offering, adding critical social-networking functionality to its enterprise offerings. There's a stark contrast between the frothy acquisition market in enterprise social networking and the stock price performance of its consumer-oriented cousin Facebook. The social network is the key topic of our latest special free report: Forget Facebook -- Here's the Tech IPO You Should Be Buying. In it, we outline another recent IPO that we believe offers a much better long term opportunity for Foolish investors. Grab your free copy today!