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VMware To Build SaaS E-Mail Platform For Partners

The e-mail Software as a Service (SaaS) market will get more crowded now that VMware is acquiring Zimbra, who makes open-source e-mail and collaboration software. The move will allow VMware's telecom, hosting and provider partners to offer e-mail as a service using Zimbra in a VMware stack. VMware and Zimbra aren't strangers. VMware says a Zimbra virtual appliance for premises deployment was a popular download on VMware's virtual appliance marketplace.

VMware has already developed and acquired technology to build out Infrastructure and Platform as a Service (IaaS and PaaS) capabilities for partners. VMware CTO Steve Herrod wrote in his blog that because of the Zimbra acquisition "...we will now offer our partners an even higher level of cloud capability, one where customers can simply use an application without worrying about the details of how and where it runs. This top layer of the hierarchy is known as Software as a Service (SaaS)."

The market for business-class e-mail and messaging services is already hotly contested. Independent providers such as Live Office and Zoho, as well as large vendors, are grabbing for market share, including Microsoft's hosted Exchange offering, Google's Gmail, and Cisco Systems, which recently launched WebEx Mail, its own hosted messaging and collaboration service.

The challenge for VMware and its partners is to understand what will drive the small and mid-size market to adopt cloud computing and productivity apps such as messaging, says Dave Bartoletti, a technology analyst with The Taneja Group. "If VMware can't differentiate clearly from Zoho and others, they're another in a crowded field."

Bartoletti sees other hurdles as well. For one, VMware needs an open source database to complete a virtual application stack, and Bartoletti thinks VMware will be looking to acquire one. He also says the company will need to strike the right balance between selling virtualization versus selling virtualized "units" of compute power with its vBlocks initiative or units of an application with virtual appliances. "VBlocks are for the enterprise; appliances in the cloud are for SMBs."

VMware is buying Zimbra from Yahoo, which acquired the start-up for $350 million in 2007. Reports are that Yahoo offloaded Zimbra for far less than it paid. In an effort to regain its financial and competitive footing, Yahoo has trimmed businesses that don't fit well within its core ad-revenue business. "I think Yahoo sold it because they can't build an ad-driven revenue model on top of e-mail for consumers, and they aren't interested in delivering white-label e-mail to others," says Bartoletti. "That was Zimbra's strength."

As for VMware, the question is whether it got its money's worth. VMware definitely gains a cache of customers--according to Zimbra's VP of sales Jim Morrisroe, Zimbra has more than 55 million paid mailboxes at more than 150,000 organizations, including Comcast, Bechtel, and others. Morrisroe said in his blog that Zimbra will continue to focus on the product roadmap in place, which includes the release of Zimbra Desktop 2.0, adding more real-time messaging and content collaboration capabilities, as well as enhancing team scheduling and business continuity services. It will also support existing products and open source efforts, and will further optimize Zimbra products for vSphere-based cloud infrastructure.

Under the terms of the agreement, VMware will purchase all Zimbra technology and intellectual property. Yahoo will have the right to continue to use the Zimbra technology in its communications services. The acquisition is expected to close in the first calendar quarter of 2010. Financial details of the transaction were not disclosed.