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Why Yahoo Buying Xoopit Is a Smart Move

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Updated: Yahoo has confirmed that it is indeed buying Xoopit.

Yahoo (s YHOO), the No. 1 email company, is rumored to be buying San Francisco-based startup Xoopit for about $20 million. While the Wall Street Journal says that negotiations are continuing, Kara Swisher says it’s a done deal. The company has raised about $6.5 million from investors such as Accel Partners and Foundation Capital.

The exit price tells us two things: When it comes to buying startups, we are firmly in a buyer’s market. And secondly, Xoopit has struggled to overcome its big challenge, that of getting more subscribers. If it more subscribers, it would have been accorded a higher sticker price. That said, getting acquired by Yahoo would be an amazing achievement for the Xoopit team, whom I’ve gotten to know pretty closely.

Following a column I wrote for Business 2.0 on the challenges of email and how to fix them, Xoopit co-founder Bijan Marashi got in touch with me and well, it didn’t take me long to fall in love with the company’s idea: turning the email inbox into a social network by organizing email-attached media (videos, photos) smartly and using the address book as an underpinning for a personalized social network.

It was so simple but it masked massive technological challenges. Still, it was clear to me that this team of ex-Inktomi and TellMe engineers was going to build a great service. Of course, getting people to use that service would be a massive challenge as well. Nevertheless, the potential of Xoopit is what excited me. Here is what I wrote back in March 2008:

As I have argued time and time again, the inbox and the mobile address book are two natural social environments. It’s heartening to see innovators trying to capitalize on simple common sense. Of course, it’s even more delicious that giants who own our inboxes — Google, Yahoo, Microsoft and AOL — are simply twiddling their thumbs.

Google (s goog) and AOL (s twx) are still twiddling their thumbs, even though Google Labs for Gmail has brought forward some interesting add-ons. Yahoo in particular has been a ship of fools when it comes to leveraging its email domination. Case in point: the company’s launch of the dumb-as-a-broken-brick idea called Mash, which like many of Yahoo’s attempt’s at social networking went nowhere.

I think that with this deal, however, Yahoo is playing to its strengths. (Read: Yahoo’s Number Ones, So Much More Than Search.) Using Xoopit to offer its email customers a social inbox would allow Yahoo to offer better-matched and highly contextual advertising. My biggest fear is that like in the past, it would take forever for Yahoo to integrate this service and that it would once again blow a big opportunity. Remember how long it took the company to integrate OddPost? And I have yet to see any of Zimbra’s cool features being offered on Yahoo Mail.

That said, buying Xoopit would mean Yahoo is finally adding some new, smart people to its team. The Sunnyvale, Calif.-based web company has been losing talent at a fairly rapid clip. Technically, since Yahoo owned Inktomi, Bijan is rejoining Yahoo.

To Recap: Buying Xoopit is a good and solid move by Yahoo. With it comes a talented team, a solid product and finally the ability to flex its muscles and leverage its email domination.

27 Responses to “Why Yahoo Buying Xoopit Is a Smart Move”

  1. I agree with Eric Smith. Xoopit is hard to implement as a firefox plugin from an engineering perspective — but it could be way easier for email providers themselves to do so.

    The only question we raise here — why Xoopit worth $20 million? I think Yahoo should invest in Xoopit instead of take it all.

  2. Guys we have a post coming up which will explain why Xoopit technology isn’t as simple as it seems. I think most people are missing out on the big picture here: it this company and its core technologies helps Yahoo deliver better email experience, then it should.

    If they got an internal team to do this it would still take time. If there is a problem then that is of management and people in charge. They should have seen the big changes coming two years ago and built towards this. Starting now it would not be that easy.

    • Hmmm…

      1. You extract all the attachments from emails
      2. You tag them by source, and other tags and meta information found in the email itself
      3. You can filter the attachments by source, date, tags
      4. You can show all photos by date, source, person, tags
      5. You can share photos with friends
      6. Yahoo can pull together galleries of photos with same meta info/tags if users give green light

      In fact Xoopit is less efficient and vastly slower than if Yahoo did it themselves, because they have to login to the email account and download then process the mail (see integration with gmail). Yahoo has access to all of it already, making the job vastly easier and orders of magnitude faster. Their database simply has to point to the existing attachments, since Yahoo already hosts all those attachments on their clusters.

      Potential issues? Scaling (yahoo does that). Servers? (yahoo has those). Front end to browse photos — easy to build. Database to store photos (easy also). Search engine? (yahoo does that well enough).

      Not sure if there is more to it than that, but I await with interest and will gladly say so if I’m proven wrong.

  3. Agree with Om, getting things done was a challenge for yahoo as is for any big company. Due to their size, politics, inter-team bickering, bureaucracy it just becomes all the more difficult to innovate. Its been pointed out in the write-up as well – that the challenge still remains to integrate the product into yahoo’s stack.

    Thats why you see most big-sized companies growing in-organically – IBM, Google, MS are few examples. Its not about not having the engineering brain to build a product, its about bringing the right people together and building a product, thats where startups excel.

    In any case xoopit seems like a great team and a good product, wish them all the luck with yahoo.

  4. I agree with the various comments that buying companies with “simple” technology you want but can’t manage to build yourself is a sign about the state of your world. AOL did this repeatedly and had little / no success in integrating.

    On the pricing side of the discussion, I think that buyers have finally started to figure out whether they’re buying a startup that actually has a BUSINESS or whether they’re buying one that has a FEATURE. There are SO many startups that are the latter… a good idea (even a REALLY good idea) that will never amount to anything more than a feature embedded in some other product. They can’t possibly be worth what the former group are.

  5. EngineerDude

    I completely agree with Ericson Smith. This could have been done at a fraction of the cost by Yahoo. Why do they employ all those engineers anyway?

    This is the kind of “deal” that fully demonstrates what a bunch of clueless morons run Yahoo. They blew $320+ million CASH on Zimbra; much of the talent has already walked, with no integration in sight. Now another $20 million blown and here is my prediction: before you see any of these features in Yahoo Mail, the “talent” would have walked.

    Yahoo is running bailout program for VCs – that’s all there is to it.

    • Good point… the point is that it wasn’t done. I think getting things done is a big challenge for Yahoo, as I pointed out in my post. They are a bureaucratic mess and the only reason they bought this is to speed up things. They certainly had the time to get it done for a long long time… but decisions by committee lead to Soviet Union.

      On Zimbra, we should talk. you want to email me? Use the form and I will hit you back.

      • I second the opinion of ‘engineerdude’. It is a disastrous waste of money on things that are trivial. Xoopit doesn’t add anything that could be valued at $20 million. Hiring 10 really smart engineers and paying them $500K would have gotten similar things done in six months. It is this kind of wasteful spending that has left yahoo in current situation. Afterall, xoopit isn’t more than a feature which can easily be replicated by inhouse engineering team.

  6. Does this acquisition spell the end of development on Xoopit for Gmail? Yahoo! may decide they do not want to continue improving a competitor’s e-mail product.

    It looks like an interesting product, I haven’t tried it yet. Now that Yahoo! owns it, I doubt that I will try it since I don’t want to get used to it then find it discontinued for Gmail.

    • Will

      Given that Yahoo is supporting other services on its “home page” I am hoping that they don’t discontinue this service. I am with you — this will leave me in a terrible position as well and as a result I am hesitant to invest more in this service. Yahoo is a rational company and I think they are going to make the right decision on this one.

      Fingers crossed

  7. It’s a brain-dead idea to buy Xoopit. (I use xoopit in gmail — sometimes)

    Yahoo should work the heck out of their engineers to put together a simple solution at 1/20th of the price and in a few months too. They already have all these assets all their customer’s email.

    What’s so hard about putting a little [share] link beside your attachments? Or even automatically archiving them and creating a simple interface around browsing all your attachments? I don’t get it. I really don’t. As an engineer, I know that this is not a hard problem. They have the scale, they already store the attachments. Have they forgotten how to innovate and move relatively quickly?

    I’m just glad I moved away to gmail a few years back.

  8. I agree that this is playing to Yahoo’s strengths and at this point, what else can they do. After blowing a ridiculous deal at $35 a share with Microsoft (trading around $17 a share) they’ve been losing talent like rats off a sinking ship. Any influx of new blood is a good thing for Yahoo IMHO.