Two strikes and counting for acquirers of Zimbra

Contact: Brenon Daly

Having already bounced around inside two tech giants before bouncing out of them altogether, Zimbra is now on its third owner in the past seven years. Telligent Systems, a relatively small VC-backed startup, has picked up the back-end email technology provider from VMware, which – in turn – had picked up the castoff business from Yahoo. Although terms weren’t released, we would guess Telligent spent a fraction of the $450m that the two previous buyers handed over for Zimbra.

With two tech giants having already whiffed on their ownership of Zimbra, however, we can’t help but wonder if Telligent’s purchase will be strike three for the once-promising company. The reason we ask is because in each of the deals, Zimbra was acquired in order to be something that it’s not.

For Yahoo, its mid-2007 purchase of Zimbra represented a way to counter Google Apps, which, at the time, was just starting to make its way into universities, small businesses and the service-provider market. Yahoo hosted hundreds of millions of unpaid consumer email accounts, but hadn’t been able to expand into businesses.

Yahoo’s efforts with Zimbra didn’t have any more success than the next owner, VMware. In early 2010, the infrastructure software giant made an ill-advised move into the application layer with Zimbra’s messaging and collaboration products. It has largely retreated from those efforts, divesting both Zimbra and SlideRocket as part of a larger corporate restructuring announced earlier this year.

And now it’s Telligent’s turn to see what it can do with Zimbra. From the outset, we would note that the stakes are much higher for Telligent than for either of the two previous acquirers. Both Yahoo and VMware, which do close to $5bn in annual sales, could absorb the financial impact of a questionable deal that didn’t work out. Privately held Telligent, which we estimate might generate $20m this year, doesn’t have that cushion. (Further, it may not have the brand equity to survive because Telligent is taking the unusual step of using the name of the acquired business for the surviving company.)

Telligent will have to stretch to blend its enterprise social networking products – hyped as real-time, collaborative and far more interactive than plain old email – with Zimbra. Simply put, the approaches come from different eras. Even a company as well-versed in software as Microsoft has recognized that and has adapted its M&A program accordingly. Although Microsoft dropped $1.2bn on social networking startup Yammer a year ago, the software giant only recently started integrating the Web 2.0 company with a select few stalwart programs such as SharePoint and Office, despite the connection between the applications.

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