How would MSFT-YHOO impact innovation in email?

Tim O’Reilly and Bill Tancer have commented on the email, especially webmail, market share that a combined Microsoft and Yahoo would have.  So what does that mean for the email landscape and innovation in this area?

Here are some numbers in terms of seats looking at the email assets of both companies:

#1 corporate email: MS Outlook/Exchange >100 million seats worldwide (Radicati)
#1 Webmail: Yahoo Mail >250 million seats worldwide (TechCrunch)
#2 Webmail: MS Live/Hotmail >200 million seats worldwide (TechCrunch)
open source: Yahoo Zimbra >8 million paid seats worldwide (Zimbra)

That’s about as broad a spectrum of dominance as you can get in a market.

Microsoft makes over a billion dollars a year selling Exchange server according to Radicati.  Zimbra was created to provide an open source competitor to Exchange that could beat it based on price, deployment cost, hardware requirements, etc. –  basically all element total cost of ownership.  On top of that, Zimbra has really been innovating in areas like integrating their email client with web services.

If this deal happens, I’d expect Microsoft’s focus to be on two things when it comes to email.

1: Continuing to focus on the things that lead to the cash cow – Exchange Server sales.  Things that IT decision makers care about like server management, scalability, reliability, archiving, backup, etc.  Microsoft probably has plenty of work left in areas like that if companies like Teneros are getting $40m in funding for a product to keep email running when Exchange goes down. 

2: Figuring out more and better ways to optimize ad serving across all those web mailboxes as part of their overall fight with Google in the online advertising market.

Neither of those focus areas hold a lot of promise for a lot of continued investment in the types of next-generation email solutions that Zimbra was coming out with, plus the features arms race on the client side between Yahoo/Microsoft/AOL/Gmail likely just slowed down quite a bit.

All of that means a lot of opportunity for ClearContext and others in our space who are focusing on new and more powerful ways for people to deal with overwhelming volumes of inbound email and other information. 

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