5 ms·

Xobni Walks Away From A Microsoft Deal

61 points by mhartl 19y ago

wumi 19y ago
http://www.paulgraham.com/googles.html http://www.paulgraham.com/googles.html "Tip for acquirers: when a startup turns you down, consider raising your offer, because there's a good chance the outrageous price they want will later seem a bargain. [1] From the evidence I've seen so far, startups that turn down acquisition offers usually end up doing better. Not always, but usually there's a bigger offer coming, or perhaps even an IPO."
- menloparkbum 19y ago
  "Usually" is the key phrase. The first startup I worked for turned down an $50M acquisition offer when we only had 15 employees and no funding. Everyone up to employee 10 would have made at least a million dollars off of the deal. 2 years, $20M of investment and 150 employees later, the company was "sold" for peanuts in a deal where the VCs folded us into another portfolio company and nobody got anything.
  - davidw 19y ago
    IIRC, Linuxcare turned down a few offers when it was still 'hot'. I don't think they were very good offers, but it still turned out to be a mistake.
iamelgringo 19y ago
I really think that if Xobni sticks to it's guns, they can probably have a nice ISV and make quite a bit more than $20 million a year without breaking a sweat. If they price their product for $100 a license, then they'd only have to sell 200,000 licenses a year to reach $20 million a year.
- kirubakaran 19y ago
  "If they price their product for $100 a license, then they'd only have to sell 200,000 licenses a year to reach $20 million a year." Since the price of MS Office Home Edition is $150, imho they will have a tough time justifying a price higher than $29.99 (with the current feature set of Xobni at least). Don't get me wrong - I like Xobni... I am just saying this from a practical sales standpoint. Considering this and considering they have to pay income tax instead of capital gains tax, they may have to sell at least a million copies to make $20 million. Of course they can make it into a product with a ton more features making it worth $100 a piece in the eyes of Joe CubeDweller.
  - martin 19y ago
    "Since the price of MS Office Home Edition is $150..." I don't think that really has anything to do with it. There are plenty of Office plugins that cost hundreds or even thousands of dollars. It's all about how much value the product offers and how much that value is worth to the users. I don't disagree that $100 a seat seems a bit pricey for Xobni's existing functionality, but I don't doubt it could someday be worth that or even more to a large organization.
    - mwerty 19y ago
      > There are plenty of Office plugins that cost hundreds or even thousands of dollars. Do you remember the names of these plugins? I know there are some dev-tool type plugins that cost a lot.
      - martin 19y ago
        Well, I work in the financial industry, so that's the type of product I'm familiar with... but Bloomberg, FactSet, SNL, Capital IQ, Datastream, Mekko, DealMaven... all of those offer Excel, Outlook and/or PowerPoint plug-ins that carry price tags well above those of the Office apps they depend upon.
        kirubakaran 19y ago
bootload 19y ago
"... The deal would have been a natural for Microsoft, which was offering to buy the two-year old startup for somewhere in the $20-million range ... Xobni offers a plug-in for Outlook that makes it smarter and easier to use ..." The product is a strategic choice. A choke point for desktop users to the Internet. Microsoft desktop users. The low offer could reflect the lack of competition. So the question can Xobni adapt to what people want and bring in a competitor? Then I read this article ~ http://www.techcrunch.com/2008/04/28/xobnis-secret-project-merge-outlook-with-yahoo-mail/ http://www.techcrunch.com/2008/04/28/xobnis-secret-project-m...
- deleted 19y ago
  [deleted]
smhinsey 19y ago
I think if you're willing to assume the risk of starting the company in the first place, then you ought to be willing to assume the risk of rejecting an offer and then potentially failing afterwards. It's a risk, but if you enter into it with your eyes open, and the situation makes sense, it's one you shouldn't be afraid of. I wonder if people wouldn't be having this same conversation about the Google/Yahoo deal that was kicked around in the early days. (I know that deal was different, but it's the same risk - what if your company could become the next Google by turning down this offer?) On another note, I think this response speaks to the question a lot of people have asked about whether YC companies are being created simply as acquisition targets or whether they're in it to create long term businesses.
- bigbang 19y ago
  Just another data point, even AOL tried to acquire yahoo during 95/96 for cheap. Just that price wasnt agreeable I think. Now 12 years later Yahoo acquiring AOL is an option to fend off MS.
mattmaroon 19y ago
Why does nobody mention the fact that it would be very unusual for VCs to allow a company to be acquired at a 2x return? I don't know what their pre-money was when they took that 4.25m, but even if they gave away half of the company, that's a post-money of 8.5m. No VC is going to approve a sale for less than 30m in that situation, and even that might be too low. I don't have any inside knowledge of what went on there, but I can't imagine that selling for 20m was an option for the founders even if they had wanted to.
- mpc 19y ago
  You're probably right. Also, I would imagine that if you take 5mm in funding from major VCs that you don't plan on a quick & cheap exit.
- cstejerean 19y ago
  I can only imagine a VC would approve such a deal if it became obvious that a purchase by MS was the possible exit. Hopefully the Xobni guys have a plan though for what to do when the next version of Outlook will inevitably ship with a similar feature.
  - mattmaroon 19y ago
    They have balls. I know them well enough to say they had long term aspirations long before Microsft came a knockin. They're in no worse shape now than they were before that. In fact, it's much better.
  - copenja 19y ago
    Honestly, I am not a MS hater. Really. But Outlook is not going to ship similar features. Outlook SEARCH does not work right. It is broken, go try it. How many years has it been since Lookout? BTW, I am a full time Visual Studio user, not a hater.
- mlinsey 19y ago
  Well, hopefully the VC's don't have majority control of the xobini board after one round of funding. If your VC's don't want you to sell early, they don't have the power to stop you unless they have this power written into the terms of your funding agreement. I've heard of VC's trying to get a liquidation preference with a 2X or 3X cap, which would effectively deter founders from taking quick exits, but I haven't heard of them getting flat-out veto power. So I imagine that the Xobini founders certainly did have this option. Why else would they have wasted time negotiating and signing a letter of intent to sell?
deleted 19y ago
[deleted]
aupajo 19y ago
I think it's clear that Microsoft want to add these kinds of features to Outlook. I wonder now if they'll attempt to build their own as a direct competitor, or shop around for another business to aquire?
- deleted 19y ago
  [deleted]
dfranke 19y ago
W.r.t. to simply becoming a feature of Outlook, I can't imagine what else they could possibly have expected. But $20M is a pretty weak offer.
- bigtoga 19y ago
  With what basis do you have to say $20m is a weak offer? I'm not clear on what numbers you are using to base your view on. I'm not privvy to the internals at Xobni so I couldn't even guess whether $1m is weak let alone $20m.
  - dfranke 19y ago
    They've taken $5M in funding, which probably means they took it at at least a $10M valuation. Furthermore they're already a mature, established company, probably moreso than any other YC company besides Loopt.
SwellJoe 19y ago
I admire their guts and their determination. It's awfully hard for 20-something folks to look at 20 million bucks (probably $10mil by the time the investors got their share, but still serious lifestyle-changing money) and walk away from it. Of course, as Matt pointed out, VCs don't like such a small return. 100% in 18 months isn't bad, but it's also not the kind of returns VCs need to see to make their math add up right. They can afford to fail frequently, but they can't afford to succeed modestly on a few investments and fail on the rest of them--they can only afford the failures if the successes are huge. So, it's either fail hard or win huge. It's a weird model, but it seems to work for the investors (the entrepreneurs might not always be getting a great deal out of that math, though). Anyway, I'm optimistic that the guys have the flexibility to evolve their ideas into a $100mil business. Wider platform support is crucial, of course, but so is solving a "hair on fire" kind of problem. Email is obviously a huge industry, and I know there will be many more huge successes in email-related startups, but they've got some stiff competition. So, get back to work guys...you've got a long hard road ahead of you.
- bluelu 19y ago
  I haven't yet seen an unique usefull idea from xobni so far, except that they group attachements by author....
  - rms 19y ago
    They added Gmail-style conversational threading to Outlook. That's one of the best features of Gmail and something Outlook was really missing. It's not a unique feature, but it's definitely useful. There aren't many companies out there that are trying to improve the basic functionality of email; I'm actually surprised that Xobni has seen so little competition.
    - bluelu 19y ago
      Thanks. I didn't see that when I tried it out. The email timeline and the user ranking weren't so usefull for me when I tried it out.
    - 19y ago
jdavid 19y ago
this does not look like an IP buy for MS, it looks like a human capitol buy. It's one thing to have a product, a business and be allowed the freedom to innovate. Its another thing to be brought in and fix someone-else's problem. Its my guess that MS wanted Xobni to re-vitalize outlook rather than advance their product.
ryanb 19y ago
I'm honestly surprised by all the fuss over xobni. I have it running on my Outlook at work, where I get a ton of e-mails per day, and I frankly haven't found it to be very useful as of yet. Maybe I haven't fooled with it enough.
- Bluem00 19y ago
  Search-done-right and the list of attachments sent between myself and a contact have removed a perpetual source of frustration in my workday. Maybe your situation is different.
  - Prrometheus 19y ago
    I used to regularly run 5-minute long searches in my inbox to find a particular attachment that I needed. It was hell compared to, say, GMail. I haven't tried Xobni, but the search and attachment features are the right ones to tackle.
    - briansmith 19y ago
      I heard that Outlook 2007's search is much faster than previous versions. Is that true? Maybe it isn't as fast as Xobni, Lookout, or Google Desktop Search, but people have said that it is fast enough.
- bigtoga 19y ago
  I'm with you - I tried it and didn't find it useful at all.
- ryanb 19y ago
  To be fair: about a week after my initial comment, I've adjusted to xobni and I'm pretty sure it has saved me some time in sifting through e-mails.
nazgulnarsil 19y ago
look they got a 20million dollar offer while still in beta. They're obviously on to something. Turning down the money at this point isn't that risky.
mynameishere 19y ago
[Shaking my head] Can't figure out who's behavior is more mystifying...the paymasters at MS, or someone who turns down 20M for a basically useless widget.
- ivankirigin 19y ago
  50K users find some use in it. I'd like the analytics for GMail. Hell, if they work with gmail, the iGoogle open-social effort might replace facebook for me.
  - anewaccountname 19y ago
    50K downloads is not 50K users.
    - ivankirigin 19y ago
      You're right. I just misread the stats.
  - vlad 19y ago
    50,000 users? I've had customers that would buy my software, like it, never complain, and just never use it. Since they're paying for it, I could count them as users. But counting downloads as users is a bit of a stretch.
- aswanson 19y ago
  It is easy to rationalize the MS behaviour: 1. They answer to W.H. Gates. 2. He likes it. 3. It's not their money. 4. It will improve their reputations in the company. The only answer I can come up with for the other side, given my information, is VC interference.
watmough 19y ago
I haven't used Xobni, but if Google desktop search can index my Outlook, then Google are most likely but an intern away from eating Xobni's lunch. Sender, recipients, subject, threading. I wonder if access to Outlook is the real true prize for all that work on Google desktop. It still seems pretty surprising that the only really viable way to search MS Email is by using Google desktop search.
- bigtoga 19y ago
  Xobni != Outlook search. At all. And Google Desktop Search is not the only really viable way to search Outlook. ???? Do you even use Windows?
jdroid 19y ago
The poll, as of right now. (heh heh, 1337) $20 Million? * Hell, yes! Are they crazy? 1600 * No, they will be worth a lot more a year from now. 1337 Total Votes: 2937
okeumeni 19y ago
I want to reiterate my advice to Xobni, Sell and run! These guys are beasts they will make a copy of Xobni and make you history, remember Netscape.
- tx 19y ago
  Yea, these beasts can't even compete with their own 5-year old products.

61 points by mhartl 19y ago

wumi 19y ago

http://www.paulgraham.com/googles.html http://www.paulgraham.com/googles.html "Tip for acquirers: when a startup turns you down, consider raising your offer, because there's a good chance the outrageous price they want will later seem a bargain. [1] From the evidence I've seen so far, startups that turn down acquisition offers usually end up doing better. Not always, but usually there's a bigger offer coming, or perhaps even an IPO."

menloparkbum 19y ago
"Usually" is the key phrase. The first startup I worked for turned down an $50M acquisition offer when we only had 15 employees and no funding. Everyone up to employee 10 would have made at least a million dollars off of the deal. 2 years, $20M of investment and 150 employees later, the company was "sold" for peanuts in a deal where the VCs folded us into another portfolio company and nobody got anything.
- davidw 19y ago
  IIRC, Linuxcare turned down a few offers when it was still 'hot'. I don't think they were very good offers, but it still turned out to be a mistake.

iamelgringo 19y ago

I really think that if Xobni sticks to it's guns, they can probably have a nice ISV and make quite a bit more than $20 million a year without breaking a sweat. If they price their product for $100 a license, then they'd only have to sell 200,000 licenses a year to reach $20 million a year.

kirubakaran 19y ago
"If they price their product for $100 a license, then they'd only have to sell 200,000 licenses a year to reach $20 million a year." Since the price of MS Office Home Edition is $150, imho they will have a tough time justifying a price higher than $29.99 (with the current feature set of Xobni at least). Don't get me wrong - I like Xobni... I am just saying this from a practical sales standpoint. Considering this and considering they have to pay income tax instead of capital gains tax, they may have to sell at least a million copies to make $20 million. Of course they can make it into a product with a ton more features making it worth $100 a piece in the eyes of Joe CubeDweller.
- martin 19y ago
  "Since the price of MS Office Home Edition is $150..." I don't think that really has anything to do with it. There are plenty of Office plugins that cost hundreds or even thousands of dollars. It's all about how much value the product offers and how much that value is worth to the users. I don't disagree that $100 a seat seems a bit pricey for Xobni's existing functionality, but I don't doubt it could someday be worth that or even more to a large organization.
  - mwerty 19y ago
    > There are plenty of Office plugins that cost hundreds or even thousands of dollars. Do you remember the names of these plugins? I know there are some dev-tool type plugins that cost a lot.
    - martin 19y ago
      Well, I work in the financial industry, so that's the type of product I'm familiar with... but Bloomberg, FactSet, SNL, Capital IQ, Datastream, Mekko, DealMaven... all of those offer Excel, Outlook and/or PowerPoint plug-ins that carry price tags well above those of the Office apps they depend upon.
      - kirubakaran 19y ago

bootload 19y ago

"... The deal would have been a natural for Microsoft, which was offering to buy the two-year old startup for somewhere in the $20-million range ... Xobni offers a plug-in for Outlook that makes it smarter and easier to use ..." The product is a strategic choice. A choke point for desktop users to the Internet. Microsoft desktop users. The low offer could reflect the lack of competition. So the question can Xobni adapt to what people want and bring in a competitor? Then I read this article ~ http://www.techcrunch.com/2008/04/28/xobnis-secret-project-merge-outlook-with-yahoo-mail/ http://www.techcrunch.com/2008/04/28/xobnis-secret-project-m...

deleted 19y ago
[deleted]

smhinsey 19y ago

I think if you're willing to assume the risk of starting the company in the first place, then you ought to be willing to assume the risk of rejecting an offer and then potentially failing afterwards. It's a risk, but if you enter into it with your eyes open, and the situation makes sense, it's one you shouldn't be afraid of. I wonder if people wouldn't be having this same conversation about the Google/Yahoo deal that was kicked around in the early days. (I know that deal was different, but it's the same risk - what if your company could become the next Google by turning down this offer?) On another note, I think this response speaks to the question a lot of people have asked about whether YC companies are being created simply as acquisition targets or whether they're in it to create long term businesses.

bigbang 19y ago
Just another data point, even AOL tried to acquire yahoo during 95/96 for cheap. Just that price wasnt agreeable I think. Now 12 years later Yahoo acquiring AOL is an option to fend off MS.

mattmaroon 19y ago

Why does nobody mention the fact that it would be very unusual for VCs to allow a company to be acquired at a 2x return? I don't know what their pre-money was when they took that 4.25m, but even if they gave away half of the company, that's a post-money of 8.5m. No VC is going to approve a sale for less than 30m in that situation, and even that might be too low. I don't have any inside knowledge of what went on there, but I can't imagine that selling for 20m was an option for the founders even if they had wanted to.

mpc 19y ago
You're probably right. Also, I would imagine that if you take 5mm in funding from major VCs that you don't plan on a quick & cheap exit.
cstejerean 19y ago
I can only imagine a VC would approve such a deal if it became obvious that a purchase by MS was the possible exit. Hopefully the Xobni guys have a plan though for what to do when the next version of Outlook will inevitably ship with a similar feature.
- mattmaroon 19y ago
  They have balls. I know them well enough to say they had long term aspirations long before Microsft came a knockin. They're in no worse shape now than they were before that. In fact, it's much better.
- copenja 19y ago
  Honestly, I am not a MS hater. Really. But Outlook is not going to ship similar features. Outlook SEARCH does not work right. It is broken, go try it. How many years has it been since Lookout? BTW, I am a full time Visual Studio user, not a hater.
mlinsey 19y ago
Well, hopefully the VC's don't have majority control of the xobini board after one round of funding. If your VC's don't want you to sell early, they don't have the power to stop you unless they have this power written into the terms of your funding agreement. I've heard of VC's trying to get a liquidation preference with a 2X or 3X cap, which would effectively deter founders from taking quick exits, but I haven't heard of them getting flat-out veto power. So I imagine that the Xobini founders certainly did have this option. Why else would they have wasted time negotiating and signing a letter of intent to sell?

deleted 19y ago

[deleted]

aupajo 19y ago

I think it's clear that Microsoft want to add these kinds of features to Outlook. I wonder now if they'll attempt to build their own as a direct competitor, or shop around for another business to aquire?

deleted 19y ago
[deleted]

dfranke 19y ago

W.r.t. to simply becoming a feature of Outlook, I can't imagine what else they could possibly have expected. But $20M is a pretty weak offer.

bigtoga 19y ago
With what basis do you have to say $20m is a weak offer? I'm not clear on what numbers you are using to base your view on. I'm not privvy to the internals at Xobni so I couldn't even guess whether $1m is weak let alone $20m.
- dfranke 19y ago
  They've taken $5M in funding, which probably means they took it at at least a $10M valuation. Furthermore they're already a mature, established company, probably moreso than any other YC company besides Loopt.

SwellJoe 19y ago

I admire their guts and their determination. It's awfully hard for 20-something folks to look at 20 million bucks (probably $10mil by the time the investors got their share, but still serious lifestyle-changing money) and walk away from it. Of course, as Matt pointed out, VCs don't like such a small return. 100% in 18 months isn't bad, but it's also not the kind of returns VCs need to see to make their math add up right. They can afford to fail frequently, but they can't afford to succeed modestly on a few investments and fail on the rest of them--they can only afford the failures if the successes are huge. So, it's either fail hard or win huge. It's a weird model, but it seems to work for the investors (the entrepreneurs might not always be getting a great deal out of that math, though). Anyway, I'm optimistic that the guys have the flexibility to evolve their ideas into a $100mil business. Wider platform support is crucial, of course, but so is solving a "hair on fire" kind of problem. Email is obviously a huge industry, and I know there will be many more huge successes in email-related startups, but they've got some stiff competition. So, get back to work guys...you've got a long hard road ahead of you.

bluelu 19y ago
I haven't yet seen an unique usefull idea from xobni so far, except that they group attachements by author....
- rms 19y ago
  They added Gmail-style conversational threading to Outlook. That's one of the best features of Gmail and something Outlook was really missing. It's not a unique feature, but it's definitely useful. There aren't many companies out there that are trying to improve the basic functionality of email; I'm actually surprised that Xobni has seen so little competition.
  - bluelu 19y ago
    Thanks. I didn't see that when I tried it out. The email timeline and the user ranking weren't so usefull for me when I tried it out.
  - 19y ago

jdavid 19y ago

this does not look like an IP buy for MS, it looks like a human capitol buy. It's one thing to have a product, a business and be allowed the freedom to innovate. Its another thing to be brought in and fix someone-else's problem. Its my guess that MS wanted Xobni to re-vitalize outlook rather than advance their product.

ryanb 19y ago

I'm honestly surprised by all the fuss over xobni. I have it running on my Outlook at work, where I get a ton of e-mails per day, and I frankly haven't found it to be very useful as of yet. Maybe I haven't fooled with it enough.

Bluem00 19y ago
Search-done-right and the list of attachments sent between myself and a contact have removed a perpetual source of frustration in my workday. Maybe your situation is different.
- Prrometheus 19y ago
  I used to regularly run 5-minute long searches in my inbox to find a particular attachment that I needed. It was hell compared to, say, GMail. I haven't tried Xobni, but the search and attachment features are the right ones to tackle.
  - briansmith 19y ago
    I heard that Outlook 2007's search is much faster than previous versions. Is that true? Maybe it isn't as fast as Xobni, Lookout, or Google Desktop Search, but people have said that it is fast enough.
bigtoga 19y ago
I'm with you - I tried it and didn't find it useful at all.
ryanb 19y ago
To be fair: about a week after my initial comment, I've adjusted to xobni and I'm pretty sure it has saved me some time in sifting through e-mails.

nazgulnarsil 19y ago

look they got a 20million dollar offer while still in beta. They're obviously on to something. Turning down the money at this point isn't that risky.

mynameishere 19y ago

[Shaking my head] Can't figure out who's behavior is more mystifying...the paymasters at MS, or someone who turns down 20M for a basically useless widget.

ivankirigin 19y ago
50K users find some use in it. I'd like the analytics for GMail. Hell, if they work with gmail, the iGoogle open-social effort might replace facebook for me.
- anewaccountname 19y ago
  50K downloads is not 50K users.
  - ivankirigin 19y ago
    You're right. I just misread the stats.
- vlad 19y ago
  50,000 users? I've had customers that would buy my software, like it, never complain, and just never use it. Since they're paying for it, I could count them as users. But counting downloads as users is a bit of a stretch.
aswanson 19y ago
It is easy to rationalize the MS behaviour: 1. They answer to W.H. Gates. 2. He likes it. 3. It's not their money. 4. It will improve their reputations in the company. The only answer I can come up with for the other side, given my information, is VC interference.

watmough 19y ago

I haven't used Xobni, but if Google desktop search can index my Outlook, then Google are most likely but an intern away from eating Xobni's lunch. Sender, recipients, subject, threading. I wonder if access to Outlook is the real true prize for all that work on Google desktop. It still seems pretty surprising that the only really viable way to search MS Email is by using Google desktop search.

bigtoga 19y ago
Xobni != Outlook search. At all. And Google Desktop Search is not the only really viable way to search Outlook. ???? Do you even use Windows?

jdroid 19y ago

The poll, as of right now. (heh heh, 1337) $20 Million? * Hell, yes! Are they crazy? 1600 * No, they will be worth a lot more a year from now. 1337 Total Votes: 2937

okeumeni 19y ago

I want to reiterate my advice to Xobni, Sell and run! These guys are beasts they will make a copy of Xobni and make you history, remember Netscape.

tx 19y ago
Yea, these beasts can't even compete with their own 5-year old products.