NEW YORK ( TheStreet) -- Microsoft's ( MSFT) $1.2 billion acquisition of Yammer may have been Silicon Valley's worst-kept secret, but still represents shrewd business by the lumbering software giant. Yammer, which competes with the likes of Jive Software and Salesforce.com's ( CRM) Chatter product, touts hot technology for building enterprise social networks. The San Francisco-based firm has 5 million corporate users, including employees at 85% of the Fortune 500, and is deployed in more than 200,000 businesses. Consulting company Deloitte, for example, has rolled out Yammer to 190,000 employees.
Microsoft, in a statement released Monday, confirmed that Yammer will join its Office division, outlining an integration plan for the social enterprise specialist. "Moving forward, Microsoft plans to accelerate Yammer's adoption alongside complementary offerings from Microsoft SharePoint, Office 365, Microsoft Dynamics and Skype," said the Redmond, Washington-based firm, in a statement. "We view the move as strategic, complimentary, and market-expanding for Microsoft," said Rick Sherlund, an analyst at Nomura Equity Research, in a note. "
The deal's valuation is rich given what we estimate it had $15 million to $20 million in revenues last year, although Microsoft is buying time-to-market and the benefits from scaling and monetizing Yammer across its broader Office suite." Speaking during a conference call on Monday afternoon, Kurt DelBene, the president of Microsoft's Office division, described Yammer as an "important addition" to Microsoft's cloud services. "Both Microsoft and Yammer are heavily invested in the cloud," he said. Like most tech heavyweights, Microsoft has been making a song and dance about its cloud technology for the past few years, although its strategy is now starting to take shape. The company, for example, recently revamped its Windows Server and Azure offerings to take advantage of the cloud, with Yammer further strengthening Microsoft's enterprise cloud presence. "Enterprise social networking has generated significant attention as companies evaluate the opportunity to enhance business processes with employee collaboration," said Nomura's Sherlund. "For Microsoft, the opportunity to deliver social networking as a compliment to its Dynamics suite of business software, as well as Office, SharePoint, and Skype, is a compelling fit."
The analyst says Microsoft's acquisition of Yammer keeps the social enterprise firm out of the hands of rival tech giants. "We have expected that Oracle ( ORCL), SAP ( SAP) or Microsoft might have an interest in acquiring Jive or Yammer to enhance their product functionality with next generation social networking collaboration," he said. " Google ( GOOG) has also expressed the view that collaboration should be an integral part of Google Docs productivity software." Yammer, as CEO David Sacks noted on Monday's conference call, is adding 250,000 new corporate users a month. Microsoft investors, however, were less than impressed with the Yammer deal, pushing the software maker's shares down 2.7% to close at $29.86 on Monday in a falling market. --Written by James Rogers in New York. Follow @jamesjrogers >To submit a news tip, send an email to: firstname.lastname@example.org. Check out our new tech blog, Tech Trends. Follow TheStreet Tech on your wireless devices.