David Sacks

Microsoft has reached an agreement with Yammer that will see the software giant acquire the corporate Facebook alternative for $1.2 billion in cash.

Microsoft CEO Steve Ballmer says the acquisition will add enterprise social networking to the company’s “growing portfolio of complimentary cloud services”. Yammer currently has over five million corporate users and is being used by 85% of the Fortune 500 companies.

“The service allows employees to join a secure, private social network for free and then makes it easy for companies to convert a grassroots movement into a companywide strategic initiative,” says Microsoft.

During a press conference call following the announcement, Ballmer reiterated that Yammer’s value is not just in its product and customers but in what he called its “viral adoption model”. In line with the consumerisation of IT, employees can start using the service on their own initially, often leading to IT departments then signing up for premium accounts in order to have more management and administration over the groups.

According to Ballmer, Microsoft’s sales force will be able to help Yammer convert more users to paid accounts.

In an official post on the Yammer blog, the service’s founder and CEO David Sacks says: “When Adam Pisoni and I started Yammer, we set out to do something big. When most people thought social networking was for kids, we had a vision for how it could change the way we work.

“With the backing of Microsoft, our aim is to massively accelerate our vision to change the way work gets done with software that is built for the enterprise and loved by users.”

Yammer will remain under Sacks’ direction, but will now fall under Microsoft’s Office Division. Microsoft will also continue to invest in Yammer’s standalone service. Over time, Sacks says there will be more integration between Yammer and services such as SharePoint, Office365, Dynamics and Skype.

“Yammer’s expertise in empowering employees, driving voluntary adoption, and delivering rapid innovation in the cloud will not only continue to power our standalone service, but also help shape the communication and collaboration experiences in Office 365.”

Gartner analyst Larry Cannell says the acquisition immediately makes Microsoft a strong competitor in the enterprise social market, filling a need its SharePoint service was failing to meet. SharePoint allowed users to create private Web sites for intra-company projects.

Microsoft has been pushing into the social space with the recent launch of its own experimental social networking service So.cl. The service is, however, targeted at students and combines elements of existing social platforms with search.

Despite the company’s recent push into the consumer space, Office remains Microsoft’s most profitable product. Reuters reports Office accounted for 60% of the company’s profit last year.