VMware Enters E-Mail Business with Zimbra Buy

• By Jeffrey Schwartz
• 01/14/10

VMware said Tuesday that it's acquiring Zimbra from Yahoo, extending VMware's reach beyond system virtualization.

Zimbra is the largest provider of open source e-mail and collaboration software, with 55 million mailboxes. Its technology is used in numerous hosted e-mail platforms, including Yahoo Mail, as well as the hosted services from Comcast and NTT Communications.

Zimbra's open source e-mail and calendaring solution is also available to enterprises as virtual appliances and is used by Bechtel Corp., Digg.com, and Stanford University, among others, said VMware CTO Steve Herrod in a blog post.

VMware said it intends to offer Zimbra as an alternative e-mail solution to Microsoft Exchange Server. The company will offer Zimbra through its vSphere family of virtual appliances.

"The Zimbra virtual appliance will automatically benefit from the built-in VMware vSphere scalability, availability and security services," Herrod noted. "We see this on-premise virtual appliance distribution and deployment model as a very simple yet effective approach for providing employees with collaboration capabilities, especially for small and medium-sized businesses (SMBs)."

VMware has temporarily taken the Zimbra virtual appliance off the market with plans to release an upgraded version shortly, Herrod said.

Zimbra changing hands was much needed for both Yahoo and VMware, said Burton Group analyst Bill Pray. Yahoo had acquired Zimbra over two years ago with the goal of offering enterprise services but failed to execute a viable enterprise business, Pray said. Google has had greater success in penetrating the enterprise market for e-mail and collaboration services, as have Cisco, IBM and Oracle, he said.

VMware, which already offers Exchange Server on vSphere, can now offer Zimbra as an alternative, Pray said. "It gives them the opportunity to have that discussion. How successful they will be will depend on how fast Microsoft can take that away from them by developing their Hyper-V technology even further over time, and also how much they can break out of the mold as this being an infrastructure play and not being a provider of communications and collaboration services."

VMware also sees Zimbra as an opportunity to offer cloud-based e-mail and calendaring services as an option to online alternatives such as Microsoft's Business Productivity Online Standard Suite (BPOS), Redmond's e-mail and collaboration solution consisting of Exchange Online, SharePoint Online, Live Meeting and Office Communications Online.

VMware may have the opportunity to capitalize on the grievances of Microsoft partners over recent BPOS price cuts. "I suspect that is what VMware is banking on, some of that partner discontent, to leverage some of those partners, bring them over and have them sell Zimbra instead of Exchange," Pray said.

But the issue with that is as Microsoft grows the Exchange Online business and competes against IBM, Cisco and Google, that there will be economics of scale that vendors can recognize. "By hosting millions of mailboxes, which will drive their costs down and continue to drive price points down, it will be very difficult for the smaller partners to compete in hosted e-mail in any kind of effective manner, particularly at an enterprise scale because they won't be able to get to that same price point as Microsoft," Pray said.

Despite the acquisition, Herrod said VMware intends to continue offering vSphere for Exchange Server. That makes sense, Pray said, given that many who are going to stick with Exchange will still prefer VMware's virtualization offerings -- at least until Hyper-V reaches parity. That's not expected to happen this year, however, Pray said. "VMware can build off the fact that they're in many, many enterprises. And in actuality, when Exchange is virtualized, it most commonly is virtualized on VMware."