Zimbra's fate hangs in the balance as Microsoft gets hostile with Yahoo!

Will Microsoft embrace or kill Zimbra?Zimbra is putting on a brave face as rival Microsoft turns up the heat on its bid to buy Yahoo but fear-doubt-and uncertainty is in the air.
Written by Paula Rooney, Contributor

Will Microsoft embrace or kill Zimbra?

Zimbra is putting on a brave face as rival Microsoft turns up the heat on its bid to buy Yahoo but fear-doubt-and uncertainty is in the air.

Officially, neither Microsoft nor Zimbra would discuss the ramifications of such a massive merger. Zimbra is an open source e-mail and collaboration software company acquired by Yahoo! last September.

But in a telephone interview yesterday, shortly after Microsoft threatened a hostile takeover of Yahoo if shareholders balk at the current $44.6 billion offer, one Zimbra executive said calmly that it’s business as usual.

John Robb, Vice President of Marketing and Product Management at the Zimbra Business Unit, Yahoo!, acknowledged that his company fiercely competes against Microsoft’s Outlook and Exchange but he was very tight lipped about the prospect of being eaten up by his big rival.

In February, a Zimbra co-founder sought to reassure customers in an e-mail that Zimbra will survive as an open source company, whether the Yahoo board approves or disapproves the deal.

“Even if the board did decide to go in that direction there is a long road ahead. At Zimbra, nothing has changed … We will continue to embrace open standards. That's our DNA. And we remain committed to doing that,” Satish Dharmaraj, Zimbra Co-Founder wrote in an e-mail letter sent to customers in February.

“Many businesses, partners, higher-eds, and ISPs have committed to Zimbra by becoming paying customers. And there is an even larger set that is part of our open source community. We just made an irrevocable contribution of Zimbra 5.0 to the open source. No one can take that away. We will remain true and faithful to our contractual obligations and will do everything possible to make sure that our biggest assets, you. remain confident that we are here to stay and execute,” Dharmaraj wrote.

“Thankfully, I can confidently say that the Zimbra movement is bigger than any one company," Dharmaraj said.

Really? Bigger than Microsoft?

No one has a crystal ball on this one. Microsoft, after all, would not be the first proprietary software company to buy a hot open source rival. On the other hand, Microsoft could make a big leap into the open source world with Yahoo’s assets and Zimbra’s strengths in the web 2.0 arena and the messaging hosting world. Yahoo and Zimbra, for example, are currently testing a hosted messaging model and plan to launch a Yahoo branded Zimbra hosting service in 2008, Zimbra’s Robb said.

It could go either way, observers say.

A Yahoo buy would be a “huge win for Microsoft” because it would give the company access to successful Yahoo properties like Yahoo Finance, HotJobs, Personals, and of course search and advertising,” said Alex Zaltsman, co-founder of Exigent Technologies, a Mt. Arlington, NJ collaboration services company that partners with Microsoft and Zimbra.

It would also give Microsoft access to Zimbra’s innovative features which no other mainstream commercial e-mail system has -- built-in instant messaging, file storage, integration with web apps, and message archiving, Zaltsman said.

“I think Microsoft will either kill Zimbra and retire it, or perhaps replace Hotmail with Zimbra technologies, which would make Hotmail substantially more feature rich then Yahoo and Gmail combined,” Zaltsman said. “However, Zimbra is based on open source so Microsoft would have to agree internally to run open source platforms under its own brand. It may even help bring more credibility with the open source community.”

One open source leader said it’s possible that a Microhoo entity would kill Zimbra but that would be a step backward for Microsoft in the Web 2.0 world.

“It's funny -- Zimbra was originally conceived as an extension of Microsoft Outlook/Exchange. It was intended to be a better Microsoft OWA [Outlook Web Access]. A few years later, that's one thing that Microsoft could do with it. Zimbra is exceptional while OWA is...not,” said Matt Asay, general manager and vice president at Alfresco, another top open source application provider that competes against Microsoft.

Asay is somewhat optimistic that such a deal could be a big turning point for Microsoft – toward open source. “I actually think that Yahoo! gives Microsoft a chance to open up. I'm convinced that significant swaths of Microsoft are keen to open up (open source, open standards, open APIs) and Yahoo! gives them a convenient excuse to persuade Ballmer that this makes compelling business sense for them,” Asay added.

“They don't have much of an alternative. There's simply no way for it to move all of Yahoo! including Zimbra over to .Net and other Microsoft technologies, not if it wants to lead technically and to retain employees,” he said. “So, I see Microhoo as being good for Microsoft and good for Zimbra, ultimately. If Microsoft proves foolish enough to gut Zimbra's technology, then listen for the bell tolling its demise.

At the Web 2.0 conference last fall, industry analyst John Battelle asked Microsoft CEO Steve Ballmer if he wakes up at 2:00 a.m. worrying about Zimbra. “Well, I like to sleep well and I do,” Ballmer said. “That doesn't mean we don't have a lot of good competition.”

Purchasing Yahoo – and Zimbra – would certainly allow the Microsoft CEO to sleep even better. But it could mean a lot of insomnia for folks at Zimbra – and its partners and customers – in the coming months.

Zimbra launched a major upgrade of its collaboration suite in February with an offline desktop, single interface for multiple e-mail accounts and support for Blackberry Enterprise Server. And the shipment of its J2ME client last Friday means Zimbra wil be available on mobile devices such as Motorola's Razr.

As he signed off on his email to customers in February, however, Zimbra’s Dharmaraj acknowledged that his company’s future is uncertain. “Thank you so much for allowing us to serve you... we are not planning to stop serving you. I will pro-actively communicate as and when I hear something official and tangible.”

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