Yahoo May Pack On Email Muscle With Xoopit Buy

Yahoo (Nasdaq: YHOO) is reportedly on the brink of acquiring Xoopit, a Firefox extension that lets users share content from their email accounts with social networks. Xoopit works with both Gmail and Yahoo Mail. It can send photos, videos, Web addresses, attachments and links to photo-sharing sites like Flickr or Picasa.

Xoopit will be acquired for US$20 million, according to the All Things Digital blog. The official announcement reportedly is set for Thursday.

Yahoo did not respond to the E-Commerce Times' request for comment in time for publication.

Same Path

It's understandable that Yahoo is interested in this add-on, Ken Saunders, president of Search Engine Experts, told the E-Commerce Times. "Yahoo has previously stated that they want to add social features to Yahoo mail. For Yahoo, it is another improvement and differentiation of their No. 1 product."

The deal is also interesting from an industry finance perspective, said Rishi Garg, vice president of business development and cofounder of FanSnap.

"It shows once again that the big acquirers will still make tuck-in app acquisitions," Garg told the E-Commerce Times.

"We're witnessing a barbell M&A exit environment," he noted, "made up of small all-cash deals like this or acquisitions of very large successful companies."

The industry is likely to see acquiring companies continue to step in to play the VC role and 'de-risk' smaller assets with small exits, Garg said.

"We are seeing more smaller social app companies well-funded by top investors during the Web 2.0 bubble -- as Xoopit was -- get sold for small dollars as investors realize their business models are probably unsustainable in a down economy and unlikely to generate greater near-term exits," he explained. "We saw something similar in 2001 to 2003 as VCs cleaned up their portfolios."

Google's Response

Of course, the ultimate success of the acquisition will have much to do with Google's (Nasdaq: GOOG) response: It could decide to disable access to Xoopit once it is under its competitor's roof.

If the acquisition is successful, it very well could drive more use of Yahoo mail, Garg said.

"Gmail may then be forced to counter with a similar product. The other possibility is Google builds the sharing functionality in Chrome ... to counter the Firefox-Xoopit dynamic as Google starts to promote Chrome more aggressively," he said.

Google is facing an unpalatable decision, commented Search Engine Experts' Saunders.

"They will have to decide whether allowing a Yahoo product to integrate with Gmail aligns with their goals. If they decide it does not, they risk alienating Gmail users of Xoopit," he pointed out.

No doubt few users would give the matter more than a few minutes of thought if Google did decide to take this step. Still, it would give critics fodder for the claim that Google is being protectionist, Saunders said.