JANICE KAPNER: Good morning. Thank you to everyone for joining our call today.
Joining me are Steve Ballmer, the CEO of Microsoft, Kurt DelBene, president, Microsoft Office Division, and David Sacks, the CEO of Yammer.
First a few logistics. This presentation may include forward-looking statements, which are any predictions, projections or other statements about future events. Actual results may differ materially from these forward-looking statement because of a variety of risks and uncertainties about our business, which we describe in our filings with the SEC, including our Forms 10-K and 10-Q.
Today’s teleconference is being recorded. A transcript of the prepared remarks from the teleconference will also post to the Microsoft News Center upon completion of the call. As you heard earlier, we will be taking some questions at the end of today’s call. If you ask a question, it will be included in our live transmission, in a transcript and in any future use of the recording.
With that, I’d like to turn the call over to Kurt DelBene, president of the Microsoft Office Division.
KURT DELBENE: Thanks, Janice.
I’m pleased to be here and very excited to share that this morning Microsoft and Yammer announced that Microsoft will acquire Yammer for $1.2 billion in cash.
Today is an important day for us that offers both short-term and long-term benefits to our customers. Both Microsoft and Yammer are heavily invested in the cloud and in bringing world-class social experiences to the enterprise. People have embraced social in both their personal and private lives. They’ve also voted with their feet. Employees in 85 percent of the Fortune 500 have created Yammer viral networks at their company.
Yammer is now in more than 150 countries and serves more than 200,000 businesses. They’re also meeting the needs of customers like Deloitte, which rolled out Yammer to 190,000 employees as part of its One Firm initiative to drive common practices and knowledge sharing across its geographically dispersed businesses.
7-11 has found that Yammer is a barometer for store performance. Their best-performing stores are active on Yammer, and the weaker stores tend to be inactive.
And at Supervalu, a Fortune 100, 150 grocery store chain with brands like Albertsons and Jewel-Osco, CEO Craig Herkert uses Yammer to create a culture of radical transparency that improves store performance by allowing store managers to share ideas and feedback in real time.
Yammer provides Microsoft best-in-class enterprise social networking service, as well as a phenomenal list of talented employees that know how to deliver rapid innovation in the cloud.
Just as importantly, Yammer provides a unique model that appeals directly to end users, enabling them to get started in social networking immediately.
Yammer will be an important addition to Microsoft’s cloud services, and this acquisition underscores our commitment to helping customers move to the cloud. Together we’ll deliver the most complete solution in the marketplace.
If you’re a Yammer customer you’ll continue to get secure, private social networking for your company, delivered with the same focus on simplicity, innovation and cross-platform experiences. Over time, you’ll see more connections to your investment in SharePoint, Office 365, Dynamics, Skype and other cloud services.
We’ll continue to invest in Yammer’s standalone service and the team will remain under the direction of David Sacks.
We’re thrilled to have David join the Office division management team. Congratulations to David and the entire Yammer team for the impressive results they’ve achieved over the past four years. On behalf of myself and the entire division, welcome to Microsoft.
DAVID SACKS: Thanks, Kurt.
Today’s announcement is great for both Yammer and our customers. Yammer brings world-class talent and delivering rapid innovation in the cloud and a unique adoption model that appeals directly to end users.
Combining these attributes with Microsoft’s industry-leading collaboration tools is a huge win for our customers. We couldn’t be more pleased to become a part of the Microsoft Office Division.
When my co-founder, Adam Pisoni, and I started Yammer we set off to do something big. At a time when social networks were only used in our personal lives, we had a vision for how social networking could fundamentally change the way that we work. It’s incredibly gratifying to see this vision come to fruition.
We are currently adding more than 250,000 corporate users per month. Our growth is a result of the incredible value we offer our customers, as well as the passion of our users.
For example, Ford recently noted that their approach to innovating out of a downturn included collaborating well in cost-efficient ways. They say that, and I quote, “Yammer helps spur the innovation that sets Ford apart.”
Like Ford, organizations like ARP, Cap-Gemini, Tyco, Nationwide Insurance, Southern Company, Westfields, and many, many more are using Yammer to accelerate their business and achieve much better business results.
After four years of phenomenal growth, we’re still just as passionate about our vision for enterprise social networking, and there’s no better way to scale that ambition than to join forces with Microsoft. Microsoft will provide access to the expertise and resources Yammer will need to achieve the next level of massive scale.
I want to thank all of our employees who have made this company so special. Creating a best-in-class enterprise social networking solution does not come easy, and our success wouldn’t be possible without their dedication and hard work. I’d like to extend my thanks again for all of their hard work and for making Yammer the company that it is today.
Kurt and I share the belief that enterprise social networks are more powerful when they are integrated with business applications. Together, we will deliver the most complete solution in the marketplace.
Microsoft is one of the few software companies whose products are household names. Today’s announcement signals the beginning of our plans to make Yammer one of them as well, and I couldn’t be more excited.
STEVE BALLMER: Hi. This is Steve Ballmer. I want to thank Kurt and David and thank everybody for spending the time with us today.
The first thing I want to do is to welcome the many Yammer employees who I hope are joining the call. I’m just about as thrilled and pumped up to be here and to have a chance to welcome you to the Microsoft family as I could possibly be.
When a lot of people were thinking that social networking was all about keeping up with one’s friends, Yammer, David, Adam and the team were very busy building a business on the belief that the principles in social networking could be applied to someone’s professional life as well as their personal life, and I think what they’ve done is amazing.
The second thing that really held great promise for us and that we love about the way Yammer was built, it was built on a notion that says things can grow virally where consumers can make decisions in their personal life, expand in their professional life, and still have that fit in the context of what’s going on inside businesses and enterprise in a very managed and responsible way.
The so-called consumerization of IT is a trend which I think perhaps more than almost any other company out there Yammer has gotten right with its viral adoption model and yet its ability to really allow companies to have secure, private social networks for their employees and that’s phenomenal.
As we look at it, we share a belief in the cloud, the importance of social networking, the viral adoption model, and now the key question is how do we bring productivity, communications and collaboration from Microsoft into the Yammer world, and how do we surface people’s professional social networking relationship inside of what people do every day in Microsoft Office and other business applications, and we think there’s just a tremendous, tremendous opportunity in doing both of those things.
The fact of the matter is as we move forward the notion of people having their own identity, their professional identity, their corporation’s identity, it’s a big deal how you interact. How do schools and teachers and parents all come together, how do employees and other employees in a company interact, how do you put together groups of people who want to interact across company boundaries? And the key innovations in not just technology but the way to surface that in a usable, consumer-oriented way that Yammer has pioneered I think are very fundamental, they’ll be fundamental at Microsoft, and we’re excited to have a chance to welcome Yammer to the Microsoft family and to go forward together and build on the pretty fundamental concept that Yammer really has gotten right.
It’s a great day. We’ve been busy as a company. A lot’s happened with a number of our other products. We’ve made a release preview on Windows 8 that was important, a lot of Xbox news, Windows Server and Azure, Surface, the Windows Phone, but today the real focus is on what we’re doing for professional and enterprise social networking, and the pioneering work that we think we can build on from Yammer.
So, thank you all very, very much, and we’ll look forward to questions and discussion.
JANICE KAPNER: That concludes our formal remarks for today. Now, we’re happy to open it up and take some questions. So, operator, please go ahead and repeat your instructions.
DAVID CARR, InformationWeek: Yes. I’m most curious about what this means for collaboration and social well, particularly social technologies, profile capabilities, and so forth, inside of SharePoint. Is there to some extent an architectural decision being made here that maybe some of that social functionality is better served by a cloud application, by something that’s maybe more loosely connected to SharePoint rather than being built into the SharePoint platform, or is there some plan to actually embed Yammer technologies into SharePoint or more deeply integrate them in some way?
I’m also curious about the One Drum technology that Yammer had acquired recently from a small startup that is aimed particularly at Microsoft Office document integration. I’m wondering how that is going to play out. It may be redundant with other technologies that Microsoft has in its portfolio, such as technologies you’ve picked up from Groove Networks, and others.
So, can you paint for us a little bit of the architecture, technology architecture picture that comes out of this?
KURT DELBENE: This is Kurt DelBene. The first thing I would stress is that it’s early to talk in any kind of details. And much of what you talk about are the kinds of questions and investigations that we need to do once we start working between the two companies. I think it is safe to say that we’re very excited, obviously, about the social needs and capabilities that Yammer has. Those are valuable on a standalone basis, and we are very committed to continuing that standalone business because it is such an exciting one for customers.
But then you can move to points where you think there are natural synergies between the capabilities of Yammer and the capabilities of SharePoint. And so we will be investigating those kinds of capabilities. I don’t think in a fully on-premises world we can imagine moving the cloud capabilities into the on premises. It is a cloud-first offering. I would say rather we are, as you probably well know, investing very substantially in having SharePoint be a rich cloud offering via Office 365 along with the other information worker servers and services that we have like Exchange, and Lync. And so we see even greater synergies there, and an opportunity to have both a standalone product as well as a richer set of capabilities in the Office 365 service as well.
So, without going into specific details, at least hopefully that gives you a sense of how we’re thinking about the opportunity. I’ll let David talk to you about One Drum.
DAVID SACKS: Sure. So, this is David. So, Yammer acquired One Drum in order to enable our customers to access files from Yammer from their desktop, from essentially a folder on their desktop. And we still believe that functionality is extremely important, and we plan to offer it. The particulars of how One Drum will interact with any Microsoft products we just haven’t gotten into yet. We just haven’t gotten to that phase of the integration plan.
STEVE BALLMER: One thing I should add is SharePoint has been a tremendous success, and has a bright future. Yammer has been a tremendous success and has a bright future. And so one of the keys, of course, is when I say Microsoft on Yammer/Yammer on Microsoft, really getting the integration right is clearly one of the most motivating opportunities, I think, for both teams.
DAVID CARR: Should we look to something like the example of how you’ve brought Skype into the organization as a model for how you would treat Yammer?
STEVE BALLMER: Sure.
JANICE KAPNER: Okay, let’s move to the next question.
MICHAEL LIEDTKE, Associated Press: Hi, my question is for David. I was just wondering could you talk about how the difficulties in the IPO market since Facebook’s offering may have influenced your decision to pursue a sale, rather than I mean it was why we thought you might go the IPO route. How has the recent event shaped your thinking?
DAVID SACKS: I don’t think they played much of a role. I think our thinking was based on the fit with Microsoft and the fact that we think that Microsoft is a great partner for us in expanding the service, taking it to the next level. I think it’s really the best possible partner in terms of its reach, its resources, its ability to help us scale combined with its portfolio of other communication and collaboration products that over time we’ll be able to integrate with. I think it just really is a unique partner for us. And so when this opportunity came along that’s the light in which we looked at it.
MICHAEL LIEDTKE: Did this opportunity come along after the Facebook IPO?
STEVE BALLMER: I think actually we started talking before the Facebook IPO, and obviously we didn’t finish talking until after the Facebook IPO. So, you’ll have to decide if we were talking throughout the IPO, but it didn’t drive Microsoft and David just spoke for himself.
MARK MOERDLER, Sanford Bernstein: Thank you. I guess two questions to it. The first one trailing it a little bit on the book questions before. If we think about this relating to, for example, Dynamics, or Dynamics CRM Online, should we think of Yammer becoming a core functionality within the product, one in which people would get as part of their subscription, or should we think of this more as an adjacent technology that would be something else they might add.
STEVE BALLMER: This is Steve. I would say, think of Yammer as a fundamental part of our Office family. And we also provide a strong level of integration between Dynamics and Office. But, I think it’s important to think of this as a fundamental part of the communication, collaboration, productivity and social networking offer from Microsoft, both as adopted by IT, and now with the Yammer acquisition, as adopted virally. And Dynamics will be able to plug into, and Office will be able to plug back into the two will certainly integrate. But, this is about Office primarily, and it adds value to other line of business applications like Dynamics.
MARK MOERDLER: Thank you very much, one other quick question on it. You mentioned there were roughly 250,000 corporate users added a month. Is there a number we should think about in terms of the customer base at this point, or at least our user base from a corporate point of view?
DAVID SACKS: What we’ve previously announced is that we have over 5 million registered corporate users.
MARK MOERDLER: Excellent. Thank you very much.
JANICE KAPNER: Great. Next question.
JOHN FORTT, CNBC: Thanks, guys. I’m hoping you can talk about the financial implications behind this sort of when the deal becomes accretive, or anything like that. I noticed from my list of Microsoft’s acquisitions this is the biggest in a while, about the size of Fast Search and Transfer, and the first in a while that doesn’t seem to come with a whole lot of revenue that it’s adding to Microsoft, a bit more of a technology acquisition, and Microsoft tends not to pay this much for technology. So, can you put some meat around that?
STEVE BALLMER: Well, let me put some adjectives around it. I don’t know if that will qualify as meat, but it might be useful. The ability Yammer now has I would call it a sales model that we like. Viral adoption by the end user, by the consumer inside of some kind of professional organization, with an option for IT to buy enterprise-level capability and management, which is phenomenal. What does that all mean?
As long as we continue to drive hard, which is sort of job one, with Yammer as a consumer offering, and then we ramp up the Microsoft sales force to help sort of let me say rapidly accelerate the degree to which we get corporate conversions, I think we’ll see a very, very nice revenue ramp fairly quickly, which allows this thing to be should allow this to be accretive in the not too distant future. We’re not making a specific forecast, but it’s a large deal, but at the same time, in the grand scheme of Microsoft not that large and our ability to monetize with the enterprise around Yammer I think is very high.
JANET TU, Seattle Times: Hi, thank you. Can you elaborate a little bit more about how Yammer will be incorporated into Microsoft? For instance, you mentioned it will be like the Skype model. So, will Yammer operate independently as its own division? Will David’s title be president of Yammer, reporting to Kurt DelBene, and will Yammer continue to be based in San Francisco?
KURT DELBENE: So, Yammer will continue to be an organization in the Office division, and it will continue to report, or continue to be in the San Francisco area. We’re excited about them as an organization and so we intend to keep it that way. That’s the best way to get the greatest synergy and take advantage of the talent that they have.
JANET TU: Thank you.
CLINT BOULTON, Wall Street Journal: Hi, thanks. And just to clarify I’m with the Wall Street Journal’s CIO journal. And thanks for taking my question. So, my question is for how long can we expect Yammer to be a stand alone service and also, as far as integration goes, if I’m a CIO customer and I’m using SharePoint, Office 365, Microsoft Dynamics and Skype, am I going to sort of wake up one day and just find Yammer integrated across all those different products, or am I going to be offered the opportunity to purchase this as a feature add on, or how is that going to work exactly?
KURT DELBENE: This is Kurt. I think those are all things that we will figure out in the planning process as we move along. I will say that we’re excited about Yammer as a standalone service, and we don’t have an end date for that. We think it’s an exciting service, and will continue to be that, an exciting service. When you talk about integration with typical products, we usually do that along product release schedules, and so we inform our customers here are the plans for how we’re going to integrate the products together, and we roll that out as part of a general release of whether it be Office 365, or Dynamics, et cetera. So, it will follow that general pattern of how we release to customers.
STEVE BALLMER: Just a little bit of additional context, Yammer is a set of capabilities, and Yammer is a whole adoption model. We will add additional capabilities to the Yammer adoption model. In that sense, it’s not just a standalone service, it’s a service with a big future, an exciting future. That adoption model we’re excited about, and we want to pour more content into it.
At the same time, will Yammer also become kind of a capability that is integrated in with Office 365 for people who like that adoption model, I think the answer to both of those questions is yes. So, you can go Yammer to other Microsoft services, or you can go other Microsoft services to Yammer. I think there is tremendous value in really getting behind both of those, and that’s sort of a fundamental outlook on the acquisition.
JANICE KAPNER: Okay, can we have the next question.
OWEN THOMAS, Business Insider: Yes, are you aiming to compete more directly with LinkedIn in providing professional information about colleagues?
DAVID SACKS: This is David. I think LinkedIn and Yammer do pretty different things. LinkedIn is a completely publicly facing site. All the content is basically public. It’s a way to network with the whole world. Whereas Yammer, from the beginning it’s been designed as a private, secure, internal social network just for collaborating within companies. So, we’ve never seen them as competitive to what we’re doing. And there are no plans at this time from our point of view to change that.
JANICE KAPNER: Okay.
HEATHER BELLINI, Goldman Sachs: Hi, thank you. I was just wondering if you could share with us, prior to the acquisition, who did you see as your primary competitors for Yammer? Was it Jibe, was it Salesforce.com’s Chatter; and I guess I was also wondering, when people turned off the service, what was the reason that they were doing so, and what do you think you get with Microsoft that will enable them to continue to keep it on and actually expand it? Thank you.
DAVID SACKS: So, in terms of the first part, this is a very competitive market. There’s a multitude of players offering different products. There are a number of different enterprises and networking products, there are other collaboration products on the market. So, it’s a very it’s a large emerging market with a lot of players in it. What we’ve tried to do is focus on providing the best-in-class enterprise social network. And so that’s what we’ve focused on.
I think the second part of your question was why do people turn it off? You know, the answer to that is, that hardly ever happens. We’ve been I think one of the ways that we’ve been one of the things that I think most remarkable about our viral adoption has been, first of all, it’s been completely voluntary on the part of the employees in terms of getting this product into companies. But when that happens, the reaction by companies has largely been positive. I think companies are really trying to figure out how to enable more collaboration among their employees. And so when this thing happens in a grassroots way, I think they’re usually delighted.
They naturally have questions that they want answered about security, compliance, the premium tools, and so that’s when we engage with them in a conversation relationship, but the results of that by and large have been very, very positive.
STEVE BALLMER: David obviously spoke well about who Yammer thought of as their competitors. I will say as we move forward in the discussions with these guys, I would say they were pretty unique, maybe very unique in the viral adoption model. You can throw the word “enterprise” and “social” on a bunch of different stuff, but you can’t find anybody who has really built a customer base of enterprise customers in the same way virally with great respect from the IT department, with great love from the consumer. I think Yammer is quite unique in that. And I’ll highlight that certainly for us as we move down this path.
JANICE KAPNER: Okay.
HEATHER BELLINI: Thank you.
PETER DELEVETT, San Jose Mercury News: Thanks very much. David, congratulations. I was wondering whether you could tell us anything about well, this deal is obviously a pretty open secret for the past 10 days or so. Were there particular things that perhaps slowed down negotiations, I know Steve alluded to some other things that Microsoft has had on its plate, but I’m wondering in particular if part of what you were interested in seeing aside from a dollar amount was the degree to which you were going to be able to ensure independence for Yammer. And we certainly have seen any number of large companies that companies that get acquired and then end up for various reasons having a difficulty with the integration, not just at Microsoft but elsewhere, too. So, just sort of why did the deal take so long to put together?
DAVID SACKS: I don’t think it took that long. I think it came together relatively quickly for a deal of this size. I think, to your point about what are the things that we were interested in other than obviously just the deal terms themselves, I think we were very interested in joining forces with an organization that could help accelerate our mission to bring enterprise social networking to as many companies as possible. And so we think Microsoft is an ideal partner in that respect.
As you heard Kurt say earlier, we plan to keep the Yammer team and organization intact reporting to me, and I’m reporting into the Microsoft Office Division. I can speak for myself, and Adam Pisoni, my co-founder/CTO, that we are extremely excited about staying on with the combined company. And we plan to keep leading Yammer for a long time to come.
PETER DELEVETT: Thanks very much.
JANICE KAPNER: Okay. So that will wrap our Q&A portion of today’s call. As I mentioned, the transcripts from the call will be posted to the Microsoft News Center shortly. Thank you again for joining us.