Update: Yahoo to buy Zimbra for $350 million

Acquisition instantly makes search company a major provider of Web-hosted collaboration and communications

Yahoo has agreed to buy Zimbra, a privately held company whose Web-hosted collaboration and messaging suite is considered a successful example of the SaaS (software as a service) model.

[ Plus: Web apps threaten MS Office | Talkback:  Look out, Google? ]

Yahoo will acquire Zimbra for $350 million in a transaction expected to close in this year's fourth quarter, the companies said Monday.

With Zimbra, Yahoo becomes a competitor to Google, Zoho, Cisco's WebEx, and others that provide Web-hosted collaboration and communication suites.

Zimbra, like other Web-hosted suite providers, is also considered a rival to Microsoft's Microsoft Office suite and Exchange messaging platform.

Yahoo is buying Zimbra in part to boost the Yahoo Mail Webmail service and leverage Zimbra's client base in universities, small and medium-size businesses, and ISPs, Yahoo said.

In addition to e-mail, Zimbra's suite also includes calendar and contact management components, as well as an open platform that allows third-party developers to create mini-applications called Zimlets for the suite.

Zimbra customer Peter Gilbert is ambivalent about the news. "Yahoo had their heyday, and I've gotten the impression they're on their way out and they're just grasping for straws and buying left and right in the hopes that they can come back," he said.

For Gilbert, an independent IT consultant in New York whose one-man company is called PG Systems, the best case scenario would be that Zimbra gets more resources to continue to innovate and develop its technology while Yahoo keeps its distance and doesn't interfere too much.

"Yahoo is too big and commercialized. Zimbra gave me that underdog, rebel kind of feeling," said Gilbert, who uses Zimbra for his work and has recommended it to clients.

Gilbert once used Yahoo Mail for work, but wasn't satisfied, particularly because, in his experience at the time, spam filters would often trap his messages simply because they came from a Yahoo.com address.

Prior to adopting Zimbra, he also used a shared hosted Exchange server, but he finds that the hosted Zimbra suite gives him more for his money, such as a hosted document repository and a centralized contacts manager.

It remains to be seen how committed Yahoo is to continue investing in Zimbra's technology, although it sounds like Yahoo is serious about its commitment to Zimbra, said Rebecca Wettemann, an analyst with Nucleus Research.

"Yahoo is taking advantage of the innovation and nimbleness of a small company, and what it needs to do is continue to drive that innovation in the Zimbra product while embracing it into the organization," Wettemann said.

In a question-and-answer Web page about the Yahoo deal, Zimbra said existing customers will not be affected.

Zimbra co-founder and CEO Satish Dharmaraj will continue to lead the Zimbra team, which will retain CTO Scott Dietzen and co-founders Ross Dargahi and Roland Schemers.

Zimbra has several different editions of its suite, which can be installed in-house as server software or accessed as a service from Zimbra hosting partners.

Zimbra pricing varies by edition, size of deployment and optional components. The company has about 100 employees and a customer base of more than 9 million paid mailboxes in more than 50 countries.

After the deal closes, Zimbra will become a Yahoo subsidiary.

This story was updated on September 17, 2007

Copyright © 2007 IDG Communications, Inc.