Why Yahoo Buying Xoopit Is a Smart Move


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.