Microsoft's Yammer buy raises questions about NewsGator's future

IDG News Service - When NewsGator Technologies decided to play in the nascent enterprise social collaboration market a few years ago with a product that worked only with Microsoft's SharePoint, it was making a big bet.

It was gambling that by making a deeply integrated SharePoint add-on, it would carve a profitable niche that was different from the broader opportunity pursued by competitors with vendor-agnostic products.

Until last week, the gamble seemed to have paid off. NewsGator's Social Sites, launched in 2007, has 4 million paid seats and hundreds of Fortune 2000 customers. The client roster includes JP Morgan Chase, Kraft Foods and Barclays.

However, Microsoft's announcement this week that it is acquiring Yammer for US$1.2 billion has raised questions about NewsGator's future. If Microsoft fuses Yammer's product with SharePoint, will there still be a need for Social Sites?

Until now, Social Sites has been able to remain relevant because Microsoft never boosted its internal development of enterprise social capabilities in SharePoint to the point of replicating the functionality of the NewsGator product.

But with Yammer that could change.

NewsGator CEO J.B. Holston downplayed the concerns, saying Social Sites is better integrated with SharePoint and appeals to a different type of customer.

While Yammer is a multi-tenant, cloud-based software, Social Sites is designed for on-premise and dedicated hosted environments, offering IT more controls, he said.

"The fact that Microsoft now owns Yammer doesn't change the reasons why our clients came to us originally," he said, adding that most NewsGator customers aren't comfortable using this type of software in a multi-tenant cloud. "Our customers are hyper-focused on security, governance, scalability and privacy."

Nucleus Research's analyst Rebecca Wettemann said that NewsGator provides a level of integration with SharePoint and capabilities "beyond what Yammer does today."

"NewsGator has let enterprises have an enterprise-class social collaboration environment with broad governance and IT capabilities, as well as the social collaboration features customers are looking for," she said. "Social Sites is for large organizations that want to be able to manage their social collaboration applications like any other enterprise application."

Still, Yammer, which was founded in 2008 and has about 300 employees, also boasts adoption of its product by big enterprises. Its software is used by more than 5 million corporate users and in more than 85 percent of the Fortune 500 companies. It offers a basic free version of its software and three fee-based tiers. About 200,000 businesses use Yammer in more than 150 countries, including Deloitte, which rolled out Yammer to 190,000 employees. Yammer adds about 250,000 corporate end users every month. Other big customers include Tyco, Ford and Nationwide Insurance.