- Associated Press - Monday, June 25, 2012

SAN FRANCISCO (AP) - Microsoft is buying Internet startup Yammer for $1.2 billion in an attempt to bring Facebook-like sharing features to its widely used suite of business software applications.

Yammer specializes in creating private social networks so employees within the same company can keep tabs on what colleagues are working on. That’s similar to how Facebook’s online social network allows friends and families to track what’s happening in each other’s personal lives.

The deal, announced Monday, comes nearly two weeks after word of Microsoft’s negotiations with Yammer first leaked out in published reports.

The acquisition represents Microsoft’s latest attempt to adapt to a major shift in the technology industry, one that is fueling demand for more Internet-connected services and social-networking tools.

The upheaval is threatening to marginalize Microsoft Corp., the world’s largest software maker, and ultimately diminish the amount of money coming in from sales of its Windows operating system and a wide range of applications designed primarily for personal computers.

As part of its effort to remain relevant, Microsoft paid $8.5 billion last year for Internet video chat service Skype in the largest acquisition in its history.

In another bold move, Microsoft last week unveiled its own tablet computer, Surface, to compete with Apple Inc.’s iPad. Microsoft has designed Surface to run on the upcoming Windows 8, the biggest change to the company’s operating system in nearly two decades.

Microsoft CEO Steve Ballmer is counting on Yammer’s sharing tools to ensure that long-established Microsoft applications, including its word processing and spreadsheet programs, remain vital components for getting work done. Google Inc. has emerged as a threat with a toolbox of similar programs that run primarily over the Internet rather than on individual machines.

“Think of Yammer as a fundamental part of our Office family,” Ballmer said on a Monday conference call.

Microsoft will have much of the same autonomy given to Skype since that deal closed eight months ago. Yammer will continue to be run from its San Francisco headquarters by its co-founder and CEO, David Sacks. It will also continue to provide its services separately from Microsoft’s offerings.

Microsoft did not give a time frame for when the deal should close.

Gartner Inc. analyst Larry Cannell said Microsoft’s latest acquisition was smart and reflected “a recognition that the social capabilities in Microsoft’s products have been deficient.”

Investors couldn’t muster much enthusiasm for the deal on another somber day for the stock market. Microsoft’s stock fell 82 cents, or nearly 3 percent, to close at $29.88.

Although other companies such as Jive Software Inc. and Salesforce.com Inc. are building social networks for businesses, Yammer shares the most DNA with Facebook Inc.

When it started in 2008, Yammer raised its initial funding from Peter Thiel _ Facebook’s first major investor. Thiel formerly worked with Sacks while they were both executives at PayPal, an online payment service that eBay Inc. bought for $1.5 billion in 2002.

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