By Caleb Garling

Microsoft just paid $1.2 billion for Yammer. But it still plans on giving away the company’s social-networking service for free.

At least, that’s the word from David Sacks, the CEO of Yammer, a San Francisco outfit whose service is best described as Facebook for use inside businesses. The almost-4-year-old company is part of a new breed of startup that seeks to find its way into the world’s businesses by offering a free service that office workers will start using on their own. The idea is that once their employees are hooked on the product, businesses will pay for tools that give their IT departments more control over the thing.

According to Sacks, Yammer will stick with this “freemium” model as it moves under Microsoft’s wing, and it will use the strategy to encourage adoption not only of its own products, but existing Microsoft tools as well. Microsoft declined to comment for this story, but clearly, the company is working to change the way its core business operates in order to keep up with the latest wave of tech outfits.

“Everybody has shifted to this model because its so compelling to let the end users try the software before [businesses] buy it,” Sacks tells Wired in his first interview since the big acquisition. “We’re going to look to see if Yammer can keep fueling its own growth — but fuel the growth of Office 365.”

Office 365 is the online incarnation of Microsoft’s venerable Office suite of business applications that includes such familiar tools as Word and Excel. In launching the latest version of Office earlier this month, Microsoft CEO Steve Ballmer said that the software giant would eventually integrate Yammer with various Office applications.

Ballmer called Office “the most important product we sell,” and though the suite is still a mainstay in businesses across the planet, it’s getting some serious competition from Google Apps — the search giant’s suite of business apps, which operates entirely online.

“Google is cutting into Microsoft’s business for both email and personal productivity suites — the latter, by slow attrition rather than direct replacement,” read a report from research outfit Gartner in May of this year. “Compared with Microsoft, Google appears to be winning one-third to one-half of new, paid-for, cloud-based office system seats.”

In response, Microsoft has moved Office onto the net. Office 365 launched over a year ago, but Ballmer calls the new version the first version “designed from the get-go” as an online service. That said, it continues to build and sell local software applications as well. These can be used in tandem with the online services, but they can also plug into back-end software running on your own servers. When you’re the size of Microsoft, you can only change so much.

Microsoft has long touted its Sharepoint software — a broad tool that facilitates office collaboration — as a platform for building social networks, and many companies are using it in this way, including game developer Electronic Arts. But it seems that Microsoft sees Yammer as a way of backing its Office tools with a social network more along the lines of Facebook and the various business services that mimic Mark Zuckerberg’s creation, including’s Chatter.

According to Sacks, the Yammer and Microsoft product teams are already exploring how Yammer can better integrate with Office 365, SharePoint, the customer relationship management tool Dynamics, and Skype, the voice-over-IP service that also came to Microsoft by way of acquisition. Yammer will join Microsoft’s Office Division, led by Kurt DelBene.

At the same time, Sacks says, Microsoft hopes to significantly expand the reach of Yammer, which claims more than 5 million corporate users, including such names as Deloitte, Ford, and 7-11. And apparently, this means the company will double-down on the freemium idea. “[Microsoft] really believes in the viral, freemium business model and we’re going to continue that,” he says. “I think Microsoft would like to see us at hundreds of millions users.”

Andy McLoughlin — the co-founder of Huddle, a startup offering online collaboration tools that compete with Yammer — believes Yammer’s acquisition validates the notion that social networks can play into a larger ecosystem of business applications. But at the same time, he questions whether Microsoft can actually make this work with its existing suite of tools, which come from a very different world.

“I think a lot of businesses who have been running Yammer are going to be shocked three months later when they get a call from Microsoft and hear, ‘You’ve been using this tool that you like. How about spending hundreds of thousands of dollars on enterprise software?’” McLoughlin says.

“If I was Yammer, the biggest concern that I would have is if [Microsoft] is going to take my nice, friendly brand and re-release it as something like ‘Microsoft Social Cloud Server 2015.’”

Aaron Levie — the CEO of Box, another outfit that seeks to work its way into business using the freemium model — has been a vocal critic of Microsoft in the past, associating the giant with the software of the past. But he has cooled on his criticisms recently, and he now believes that Microsoft is moving in the right direction as it uses Yammer to further consolidate the many tools it offers to businesses.

He compares the move to software giant SAP buying SuccessFactors, another outfit that sought to reinvent business software by moving it online. Indeed, Microsoft is just one of many tech giants who are scrambling to keep up with the new world order. At the very least, you have to say it’s moving in the right direction.



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