Updated June 14, 2012, 10:24 p.m. ET.

Microsoft to Buy Yammer for $1 Billion

By JESSICA E. VASCELLARO And SHIRA OVIDE

Business-software company Yammer Inc. agreed to sell itself to Microsoft Corp. MSFT +0.72% for more than $1 billion, according a person familiar with the matter, in a sign Microsoft may be trying to plug holes in its ubiquitous Office software.

It is unclear when the Yammer acquisition will be completed and announced, according to the person familiar with the deal.

A Microsoft spokesman declined to comment. Representatives for Yammer didn't immediately respond to requests for comment.

Yammer is often called Facebook Inc. FB +3.74% for the workplace because it creates private social networks inside companies. Yammer—launched in 2008—also has file-sharing tools and other software. A sale of Yammer further validates a cadre of young companies—which includes Box Inc., Jive Software Inc. JIVE +11.60%and Basecamp—that are vying to shake up the ways people work. Some of the new arrivals, like Yammer, are trying to replace existing tools for digital messaging or keep up with to-do lists. Start-ups such as Dropbox Inc. give workers new ways to store files online or edit them together with co-workers.

These companies don't grab as many headlines as popular consumer Web companies such as Facebook or Twitter Inc., but investors and established technology companies are taking note. Jive, which went public in December, has seen its stock price rise 50% from its initial public offering price. Dropbox has a private-market valuation of $4 billion. Tech giants including Oracle Corp. ORCL -0.41%have been buying scores of business-software start-ups.

"There is absolutely a next generation of enterprise technologies emerging, and it's going to be the foundation of how companies work five or 10 years from now," said Aaron Levie, co-founder and chief executive of Box, an online file-sharing start-up.

Many of these newcomers are a potential threat to Microsoft, which pioneered software for work. But Yammer and many other new entrants also link into Microsoft products like Outlook email and SharePoint collaboration software and add functions to enhance these Microsoft offerings.

If Microsoft completes the deal for Yammer, it would be the second time in about a year that Microsoft intercepted a company on the way to a potential initial public offering. Last May, Microsoft agreed to buy video-calling service Skype SARL for $8.5 billion, the biggest acquisition in the company's history. Skype's owners had filed documents with regulators to take the company public, but Skype concurrently was pursuing a possible sale.

Yammer has raised about $142 million from venture-capital investors, including a February fundraising transaction. Yammer CEO David Sacks has said the company planned to go public eventually, and investment bankers have talked about Yammer as an IPO candidate in a year or more.

The purchase of Yammer could add more social features to Microsoft Office, which for years has been a core business for the Redmond, Wash., giant. In the nine months ended March 31, the division anchored by Microsoft Office posted revenue of $17.7 billion, up 6.4% from the $16.6 billion in revenue in the year-earlier period. The Office division regularly generates more than half of Microsoft's annual operating income. Office has shown few signs of financial weakness despite competition from Google Inc. GOOG -0.36%and other companies offering low-cost alternative software to create documents, spreadsheets and presentations.

Office already has a product, SharePoint, that has some of the same features as Yammer. But while many companies use SharePoint as back-end software to power internal corporate websites, many do not use SharePoint functions for document sharing or for social networking.

Yammer seeks to get workers to adopt its free social-networking features in the hopes their employers will catch on and pay for upgrades. Yammer has said it has more than four million corporate users, only 20% of which are paying for Yammer services.

Bloomberg News earlier reported Microsoft was in discussions to acquire Yammer.

Write to Jessica E. Vascellaro at jessica.vascellaro@wsj.com and Shira Ovide at shira.ovide@wsj.com

Microsoft to Buy Yammer for $1 Billion - WSJ.com