Yammer: Microsoft’s Newest Secret Weapon

It comes as no surprise to hear that the technology sector moves very quickly, so a company that outpaces the industry is really working on all cylinders. Lately, that company has been Microsoft (MSFT). With two major conferences last week, Microsoft has been center of attention. And for good reason, the company has unveiled at the very least three major announcements, all of which will make them a stronger competitor in the industry. Many had previously counted the software giant out, saying that it has been replaced with newcomers, but these announcements question that idea; Microsoft appears to just be getting started. It’s already rebounded from the dip it took last month, when its price hit around $28. Now it’s back around $29.

The largest announcement, and one that was expected, was the unveiling of its own tablet computer called Surface. With no viable Windows tablet on the market, Microsoft desperately needed something, and needed something of quality. There are a few poor Android tablets on the market, none of which Microsoft wanted to replicate. With Surface, Microsoft is coming straight after the iPad. Surface is a high definition tablet computer with a cover that can also double as a keyboard. This feature is likely to attract enterprises to Surface. With Microsoft’s high usage throughout enterprises, a tablet will allow it to stem the bring-your-own-device movement that is causing more iPads to be used at work. Additionally, with Office on the Surface, employees will be able to easily transition office work to work being done at home, ultimately increasing productivity.

There is a lot to be disclosed about Surface yet, such as price, but overall it looks like a very solid tablet. There is the possibility that by making a tablet of its own, Microsoft will cause its partners to produce high quality Windows tablets which is similar to how Google used its Nexus phone to challenge its partners. If this is the case, Microsoft might very quickly become a strong competitor with Apple (AAPL). Reaching this point, in which the Surface truly contends with the iPad, would be a huge moment for Microsoft.

Another major announcement was the acquisition of social startup Yammer for $1.2 billion in cash. The addition of Yammer will allow Microsoft to add a social element to its existing enterprise portfolio which includes SharePoint and Office. This will assuredly make it harder for enterprises to switch to any other software provider, as Microsoft has further distanced itself from the competition. Also important, the cloud capabilities of Yammer will add much needed functionality to Microsoft’s services, as it is only beginning to migrate some of its Office offerings into the cloud. Much as enterprise system provider Oracle (ORCL) is doing, Microsoft is looking to acquire its way into cloud computing. The price tag made some serious news, but a company as large as Microsoft (Market Cap. of over $256 billion) should not shy away from making such a large investment.

But since there is much money to be made in tablet computing, there is strong competition developing. One competitor that likely would not be broken is Amazon.com (AMZN) which offers a strong tablet computer on the low end of the price spectrum. Currently, the Kindle Fire retails for $199 and is connected directly to Amazon’s huge retail platform. Also, with rumors that a Kindle Fire 2 might be ready by July, Microsoft would be very late entering into this low price market.

That is where Google (GOOG) fits into the tablet equation. Rumors are abound that Google will be introducing its own low price Nexus tablet to compete with the Kindle Fire. If rumors are true, the Google tablet will be called Nexus 7 and will retail for $199, making it a strong price competitor with Amazon. With little information on either the Nexus 7 or the Kindle Fire 2 it is hard to say whether one will have more functionality than the other. However, it appears that neither will be a director competitor with Surface. Surface will assuredly have more functionality and more options than either the Nexus or the Kindle Fire. In fact, there appear to be two tablet computing environments developing: those with high functionality and high price and those with less functionality and lower price. It does not seem like these two markets will merge anytime soon.

There is, of course, Apple’s iPad that will be a huge roadblock to Surface’s success. However, there are many who prefer Microsoft over Apple that would willingly switch. As mentioned, enterprises will be a main driver of Surface’s success, but also many view the Windows 8 operating system to be a much better touch experience than Apple’s iOS. More details will need to come out before anybody can reasonably estimate the market.

Overall, the future looks promising for Microsoft. With many new products coming out, as well as much needed functionality to existing products, it will be a busy year. I expect Microsoft to shed some of the negative associations it has developed over the years, namely that Microsoft does not innovate any longer. With a more focused mission and a stronger control over the user experience, Microsoft is poised to become a strong player yet again. Its stock price will in no way match that of Apple’s recent ascent, but shareholders will likely be rewarded, albeit quite a bit more modestly.