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Why Cisco Bought Mail Startup PostPath for $215M

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In order to fight its ongoing battle against Microsoft and Google on the whole issue of “collaboration,” Cisco today added yet another weapon to its arsenal.

The San Jose, Calif.-based company said it’s buying PostPath, which will allow it to add email and calendaring features to its WebEx collaboration software, for a whopping $215 million. The acquisition shouldn’t come as a surprise: John Chambers, CEO of Cisco Systems, recently said: “We believe we are entering the next phase of the Internet as growth and productivity will center on collaboration enabled by networked Web 2.0 technologies.”

PostPath, a relatively unknown start-up based in Mountain View, Calif., makes a Linux-based e-mail system that includes an independent AJAX Web client and works well on mobile clients. OK, it’s nothing more than a Linux replacement for Microsoft Exchange, sort of like Zimbra, which got acquired by Yahoo last year for $350 million.

It came out in stealth in 2006 and has operated under the radar for a long time. It recently announced that it worked with Apple’s iPhone. It is not clear who funded the company or for how much. The board members include representatives of Worldview Technology Partners, Matrix Partners and JAFCO Ventures.

Despite this acquisition, in addition to $3.4 billion purchase of WebEx, Cisco is primarily a hardware company that makes a living selling switches and routers. Nevertheless the company has the sales force and the channels to dent Microsoft’s domination. Oh, this battle is more fun to watch than anything else out there.

19 Responses to “Why Cisco Bought Mail Startup PostPath for $215M”

  1. Elena Angelova

    PostPath in Bulgaria (Europe) started in 2005 – offshore office.

    15 mln dollars was invested in the start up by Martix Partners and Worldview Technology Partners

    First Boss of the company in BG – Eric Dumas
    Capital newspaper in BG,
    Article: Small Deal with a big meaning – page 57

  2. totally agree with Chris that it is simply not possible in the short run to get rid of Outlook from employees’ work lives. too much data in there, too many processes assume Outlook, and employees are simply too used to it.

    it is the expensive and weighty back-end (Exchange) that is the real burden, and what the hosted SaaS approach seeks to substitute.

    to answer Rurik, Unified Communications are already in the “cloud” for the small to mid sized business segment. Whether itll happen for larger businesses is a question mark. small businesses have been using hosted solutions for messaging, collaboration and CRM and with great success for a number of years now with hosted exchange/sharepoint, and solutions salesforce and hyperoffice. theres no reason to believe that hosted “unified communications” solutions wont work just as well for them.

  3. @ Rurik – the beauty of the PostPath product is that by replacing the costly back end (server licenses and CALs) you don’t have the hurdle of having to retrain 10,000 employees who live in MS Outlook. Many enterprises have tons of processes and equity built up in the MS Outlook platform. This would be a huge burden for a migration to another mail fat-client. However, replacing the back-end with a low-cost and flexible Linux OS and using open-source tools for mail hygiene and security is much more feasible.

    @ Griffon – I think they used an earlier pre-sale to Yahoo! version of Zimbra to build the web mail client upon.

  4. Griffon

    There is some weird stuff with postpath. I was looking at their screen shots of the ajax client, it “is” zimbra, not like but is. I guess there back end could be different though. Very strange.

  5. BlogReader

    I can’t figure out why a company that sells switches wants to deal with software that does some Exchange like “stuff” Is Cisco a software company? This is very confusing.

  6. PostPath launched at DEMOfall 06 and raised $30 million in VC funding closing a C round Jan. 2007. The third funding round of $17.5 was led by JAFCO Ventures; existing investors Matrix Partners and Worldview Technology partners also participated.

  7. Cisco seems to be on a path to get into the SaaS platform business. Their ad campaign on “Human Network” is brilliant and depicts them moving from networking hardware equipment to human collaboration. The future battle with Microsoft would be on services provided and not software, Cisco therefore should be in good shape.

  8. @Dave — Cisco needs to buy/build software — fast. Microsoft, with Exchange and OCS, intends to merge e-mail, IM, collaboration and telephony into a single software-based platform. Microsoft software, of course. All the rest will be simple software plug-ins or add-ons to the MS platform, and all the hardware will be commoditized. There will be no PBX market any more and no more $billions in PBX sales for Cisco.

    @Om — even with this purchase, Cisco is still missing the magic advantage of Microsoft: control of the desktop (MS Outlook). That is why we at Unison built both a server and a fat desktop client for Unison. You can’t just replace the back end, as PostPath does — it doesn’t work that way.

    Separately, as someone who helped build the world’s largest Microsoft SaaS company (Intermedia), I can tell you that unified communications will not be ‘in the cloud’ for at least 10 years — I feel that is an idealistic Silicon Valley view. Today, only 1% of MS Exchange seats are hosted (around 2m out of 200m seats worldwide). Most corporate IT buyers are too concerned about security and ownership of content to go the SaaS route today — and unified communications is even MORE difficult to do as SaaS than standard Exchange/OCS/SharePoint hosting, because of latency and VoIP issues.

    For this reason we are mostly targeting Unison as an on-premise solution, however unfashionable that may be in Palo Alto ;)

    Rurik Bradbury
    Unison Technologies

  9. it is becoming increasingly clear where the action is really at nowadays on the internet (enterprise web 2.0 is truly here?). it is a race to provide a “unified communications” or “complete collaboration” solution.

    a “complete collaboration” solution is integrated SaaS, web based, messaging, collaboration and conferencing solutions (email server, task management, contact management, calendaring, document management, forums, chat and web conferencing all in one).

    microsoft’s shot at it is the recently launched “productivity suite” (hosted exchange+sharepoint+livemeeting). Google is also aiming this domain with google pages, google apps, gtalk, gmail etc. and now Cisco by adding functionality to webex.

    but for me, all of the above solutions are “SaaS for big organizations”. companies traditionally targeting the growing business domain are also moving towards a “unified communications” solution. hyperoffice recently launched hypermeeting , its web conferencing solution fully integrable with HyperOffice, making it a fully integrated messaging + collaboration + conferencing solution.

    Check out my take on the whole thing here

  10. well, kudos to cisco for exploring software – but honestly, doesn’t this direction feel a bit like mcdonald’s when they tried to sell italian food? come on ‘mon, restrain your brand…

    and anyways, free tools for this are taking off – have you checked out the new dimdim? you oughta do a feature over at ostatic on this killer open source webexesque app….