Zimbra's valuation...a hint of things to come (UPDATED w/ more accurate sales numbers)

Hefty valuations equals a bet on the future.That future is clearly open source plus SaaS, based on the multiples people are willing to pay.

I just heard from an unimpeachable source close to the company that Zimbra's revenue last year was ~$6 million. (Though the more interesting number is the significant increase they've had this year (on track to hit $20 million), which points to a strong future.) That makes the $350 million acquisition by Yahoo outstandingly profitable for Satish and crew. That's a ~60X valuation (on 12 months trailing revenues).

Was Yahoo foolish? Yahoo isn't a foolish company. I think it means that Yahoo believes Yahoo plus Zimbra is worth more than $350 million, and I think it's right. Citrix spent $500 million on a company that had $1 million in 12 months trailing revenues. Foolish? Not when you consider the future.

The future belongs to open source. Yahoo, Citrix and others are buying into that future now, in a similar way to how Google and others have been buying up SaaS/Web 2.0 companies (at heightened multiples). Microsoft is about to go on record as saying that open source can't offer sustainable business models.

What Microsoft means, of course, is that it doesn't know how to do so. And so it will continue to flail as the industry evolves beyond Microsoft's 20th century business model. Tant pis.

Incidentally, the company I worry about in all this is Red Hat. It's the industry's best chance for a standalone open-source ecosystem, and it can't afford to pay this kind of outsized multiple. Red Hat has to buy accretive companies to maintain its profit margins. It can't hide unprofitable companies on its balance sheet.

This may well lead to Tim O'Reilly's contention that proprietary companies, not open-source purists, will end up buying up all the open-source companies. Proprietary companies have money to burn and a future to secure. So long as they're buying open source to build the future rather than to stave it off, I'm not sure it matters.

P.S. Who knew that Zimbra would be so forthright on its Web site that the company was for sale? That "buy" button does refer to the company, doesn't it?

Buy Zimbra now

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