BakBone Software announced it has acquired ColdSpark for $15.9M ($8.125M cash plus stock).

BakBone has historically been focused on data protection offerings for Linux, Solaris, and Windows-based platforms with backup, disaster recovery, replication, and storage reporting solutions. The acquisition extends BakBone’s reach into message management.

ColdSpark’s solutions can be thought of as providing service-oriented management of email traffic, historically focused largely on ecommerce and financial services customers. ColdSpark’s SparkEngine essentially defines a virtual object that represents a subset of all SMTP traffic, then enables automatic policies to manage that object. Customer scenarios include traffic prioritization and granular mail-flow management, compliance and supervision of message content, and the enablement of virtual “lanes of traffic” enabling different levels of service to different email traffic streams.

Observations:

• BakBone has acquired good technology.
• ColdSpark had substantial success selling to large financial services firms (e.g., Fidelity, Lehman Brothers, Merrill Lynch). This meant that with the vicissitudes of that market in 2008 onwards, ColdSpark’s revenues suffered to some degree.
• We estimate ColdSpark revenues peaked at around $5M in 2007, and had probably dropped to around a $3M/year rate by late 2008.
• ColdSpark had two rounds of external funding:
  • Early 2006, for $6.5M.
  • November 2008, for $3M. This was probably to keep the company alive until it found a buyer.
• We thus estimate a price/trailing 12 months revenue ratio of 4:1, assuming:
  • $1M of cash left in ColdSpark.
  • $4M of revenues for the preceding 12 months.
• ColdSpark may have been able to get a further round of funding, but assuming the uncertainty of the future success of the business, the buyout offer was probably attractive. A 4:1 price/revenue ratio isn’t fabulous, but it’s far from an insult. Plus, there probably weren’t other attractive offers on the table.
• We infer most investors got their money back, and there’s still enough stock left over to motivate key employees. All ColdSpark employees have moved over to BakBone.
• BakBone is not known in the messaging world. It will require substantial marketing and general management expertise to build its name in this new field of opportunity.

… David Sengupta and David Ferris

“Let’s meet some time next week — what times work on your end?” — overloaded knowledge worker

If this sounds familiar, you’re like many office workers who routinely jump through hoops to set up meetings with individuals outside your company. Emails sent back and forth with dates and times manually entered. Time wasted. Enter Tungle. Tungle is focused on end-user productivity specific to calendaring, and provides a cloud-based add-in for Outlook (with or without Exchange), Google Calendar, and Entourage, with Notes/Domino promised to arrive later in 2009.

Founded in 2006, Montreal-based Tungle has 18 employees and has raised approximately $6.5M so far, with an initial CDN$1.5M seed round by JLA Ventures and Desjardins VC in May 2007, followed by an A Series round of US$5M by Commonwealth, JLA Ventures, and Desjardins VC. Tungle’s solutions are delivered out of a data center based in Montreal.

Tungle users have their calendaring data and address book synchronized to the Tungle data center, with any modifications automatically pushed from the client. Scheduling a meeting requires a simple click of a button, which launches the Tungle Web site and permits population of meeting metadata including subject, location, invitees, and an optional message. Location data is integrated into Google search so it’s easy to choose your favorite Starbucks or other hangout in addition to your typical boardroom setting. Users then multiselect times on their calendar (all synched from their messaging client) that work for the meeting, and allow Tungle to select the best time. If recipients are on Tungle, their free/busy information can be checked automatically, while users not on Tungle will have the full range of available options provided, with the ability to select the timeslot that works on their end. No more back and forth trying to find a time that works.

We think Tungle has a good grasp of a market pain and has invested heavily in providing an offering that plays “man-in-the-middle” to normalize iCal traffic through its cloud-based bus to enable true free/busy across organizations. Numerous challenges exist — for example, complex meetings (recurring meetings with exceptions) have never played well between Notes/Domino and Exchange environments — and Tungle seems to have accommodated for these in its solution. We believe the biggest challenge Tungle faces will be to convince end users to leave their familiar mail client experience in favor of a new Web-based meeting scheduler. If they can get over that hurdle, Tungle has the potential to follow on the heels of solutions like Plaxo for contact management. As always, the challenge for Tungle will be to convert any viral adoption it achieves into profitability.

Companies using Microsoft Exchange may wish to have a look at Microsoft’s recently announced Exchange 2010 beta, which includes the ability to very easily share calendar, presence, and free/busy information across the Internet between federated users. But it will be some time before organizations move to Exchange 2010, and of course not every organization uses Exchange, so we predict Tungle to have sufficient runway to rapidly gain traction in the market.

… David Sengupta

The censors at the Canadian Security Intelligence Service (CSIS) have gone overboard. According to this report concerning the interrogation five years ago in a Sudanese jail of Abousfian Abdelrazik – accused of having links to al-Qaeda – “every word on that attached eight-page memo has been blacked out, including page numbers.”

Redaction is the process of blacking out or otherwise obscuring confidential or sensitive text in documents prior to releasing them to a third party for e-discovery purposes. In this case, redaction seems to have been used to make a statement.

Redaction serves a useful role in preventing the communication of privileged content to opposing parties. But in this case, CSIS has essentially conveyed the fact that it is above the law as expressed in the Freedom of Access to Information Act: It doesn’t need to provide any information, even page numbers on a memo. Yet by its extreme redactive behavior, CSIS is drawing more attention to the case, and seems to be defying someone to try and get information out of it.

Time will tell what really happened between CSIS and Abousfian Abdelrazik. Until such a time, the silence is deafening.

… David Sengupta

Microsoft made several important announcements on March 3rd concerning its Business Productivity Online Suite (BPOS):

• BPOS will move from U.S.-only to worldwide availability starting in April, with worldwide trials available immediately.
  • This is good news for customers wishing to try BPOS located in countries of availability, namely (in addition to the U.S.): Canada, U.K., Australia, New Zealand, Germany, France, Japan, Netherlands, Austria, Belgium, Denmark, Finland, Ireland, Italy, Norway, Portugal, Spain, Sweden, and Switzerland.
  • To support this expansion, Microsoft has expanded its data centers, opening primary data centers in Dublin and Singapore, and secondary data centers (for geo redundancy) in Amsterdam and Hong Kong.
• The long-awaited Office Communications Online will launch in April. This includes IM, presence, address book search, group IM, distribution list expansion, file transfer, and 1:1 audio and video.
• A deskless worker version of BPOS is being launched. This provides browser-online (rather than rich client) access to Exchange and SharePoint, and costs $3/user/month.

These moves will serve to open the floodgates to customers wishing to migrate from on-premises to Microsoft-hosted messaging and collaboration, and expands Microsoft’s offering with instant messaging, presence, and peer-to-peer A/V conferencing. For many customers Office Communications Online will represent their first exposure to group chat (née Parlano).

We expect Exchange Online to lead the adoption curve, and the move to open overseas markets will be a game-changer in many of these markets that have struggled with the costs of on-premises messaging solutions.

… David Sengupta

With cloud computing evolving rapidly, a number of vendors have taken the systems management model into the cloud. One of these is San Francisco-based Tap In Systems. It is one of the first vendors we’re aware of making use of the virtual servers (called “instances” in Amazon Web Services speak) in the Amazon Elastic Compute Cloud (EC2) infrastructure to address on-premises and cloud-based systems management.

Similarly, another Bay Area company, Hyperic, provides solutions to monitor your apps wherever they are located, and has also built out a free dashboard called CloudStatus to report on availability of Google Apps and Amazon Web Services (AWS).

We expect this to be the leading edge of a multiyear transition of traditional systems management solutions over to the cloud. Similar trends are already under way in the archiving arena (e.g., LiveOffice, Postini, Microsoft Exchange Hosted Services) and e-discovery markets (e.g., CaseCentral, CT Summation).

The question, of course, is when and how fast will the transition happen? If you have thoughts or early experiences on any of this, we’d love to hear from you!

… David Sengupta

Updated Feb 20 4.25pm PST to correct and clarify user storage quotas.
Updated Feb 21 2.30am PST to clarify that Microsoft claims that these quotas have changed.
Updated Feb 21 6.45am PST to add “mixed messages” comment.
Updated Feb 24 11.15am PST to add link to service description
Updated Feb 24 12.05pm PST to add maximum cap.

There is a groundswell of customers in the sub-100 seat range who are unhappy with the cost and effort of supporting Microsoft Exchange for their organizations. The cause of dissatisfaction tends to be around (1) licensing costs, and (2) the effort and cost of managing multiple Exchange and Active Directory servers (or Small Business Server) for a small organization.

These customers face several options. When it comes to the Microsoft vs. Google battle, these options boil down to:

• Migrate to Google Apps Premium accounts for approx. $50/user/year for 25GB of storage per mailbox
• Migrate to Exchange Online for just over $100/user/year for either 2 or 5GB of storage per mailbox, depending on whom you talk to [A Microsoft spokesperson claims that storage allocation across an organization may average 5GB per user — up to 10GB for a few heavy users, as allocated by IT — but all the documentation we can find still states the 2GB figure. Microsoft is sending mixed messages at best.]
• Migrate to Exchange Online for just over $100/user/year for 5GB of storage per mailbox (storage allocation across an organization may average up to 5GB per user out of a per-organization storage pool — so caps can be lifted up to a maximum mailbox size of 10GB for a few heavy users, as long as the average limit isn’t exceeded). Microsoft is obviously racing to catch up to Google’s 25GB quotas here.

The choice seems clear: Customers get an order of magnitude more storage at half the cost. This, then, leaves customers facing a feature decision between Outlook, Gmail, and IMAP clients. When this doesn’t become a “religious” decision (like Mac vs. PC), it comes down to the following key features:

• Folders in Outlook vs. tagging in Google
• Offline capabilities (now dampened by Google’s Gears capabilities)
• Search capabilities

At the end of the day, companies that either like the Gmail user interface — or can bring themselves to like it — will most likely make the switch. We predict that unless Microsoft dramatically increases Exchange Online mailbox quotas and decreases its pricing, a significant segment of the sub-100 user market will make the move in 2009. Economic conditions will only accelerate this migration away from the costs of running Exchange in-house.

… David Sengupta

Cloud services--including Exchange Online and Hosted Notes email--would seem well positioned in light of the current economy. Customers are looking for areas to cut operating expenses; and what enterprise service is better suited for commoditization than email? Hosting providers that demonstrate high availability and reliability stand ready to reap the benefits of a down economy, replacing unpredictable insourcing costs with a predictable, fixed monthly cost.

While the ROI seems attractive, we believe customers need to look beyond the economic downturn and consider what their infrastructures will look like in five to 10 years. Without a systematic and well-planned approach, it is conceivable to envision customers with a dog’s breakfast of solutions; for example, hosted email provided by Microsoft, client-side applications hosted by Google Apps, storage provided by Amazon, server-side applications hosted by IBM, and email archiving provided by LiveOffice. This poses at least two major problems.

First, operational efficiency necessitates that customers maintain a central view into end-to-end operations of all their IT systems. What does this “single pane of glass” look like in a Web 2.0 world? Most hosting providers we have spoken with are solely focused on the race to market dominance, and provide only a black box when it comes to remote manageability. Fear of financial penalties for any breached SLAs only further adds to hoster paranoia of letting the customers access data center performance and availability metrics. We believe customers need to drive hosters to both standardize on manageability metrics and expose those to customers who want to “keep them honest.”

Second, compliance regimes necessitate that certain customers need to have a clear handle on their data, be that for retention, legal discovery, search, or other purposes. Customers, then, need clarity on both data location and data access. Hosters need to be worked into customer policies and procedures around compliance. Sole sourcing, or minimizing the number of hosters a customer deals with, will also help keep things manageable. SLAs need to be defined in a manner that addresses what will happen should compliance-related inquiries require the hoster to act in any way. Hidden costs will quickly come to the forefront when faced with legal discovery scenarios, for example.

We believe SaaS and cloud services have a lot to offer, especially in this economy. But we think customers should be proactive in their implementations, holding hosters to task to provide the services needed for customers to ensure compliance, and have a clear picture of what is going on in their ever-expanding IT realm.

… David Sengupta

During VoiceCon San Francisco 2008 recently, Microsoft and IBM announced that interdomain federation based on SIP/SIMPLE will be available in IBM’s Sametime Gateway later in Q408 (version 8.0.2). This will enable users of Sametime to communicate with OCS 2007 (and OCS 2007 R2 users once that ships in early 2009).

We believe this is a useful step toward coexistence; however it does not enable the migration or coexistence capabilities that mid- to large-sized organizations will need if they are moving from one platform to the other.

… David Sengupta

Microsoft recently announced Office Communications Server 2007 R2 at VoiceCon in Amsterdam. Features include:

• Integration of persistent group chat (came out of Parlano acquisition).
• Attendant console and delegation – allows for an administrative assistant to triage calls.
• Audioconferencing bridge – allows for IT departments to manage their own on-prem dial-in audioconferencing bridges.
• Desktop sharing – allows for users of Office Communicator to share desktop and communicate with users outside the firewall.

As was the case with Exchange 2007, Microsoft has decided to make OCS 2007 R2 64-bit only, which means an in-place upgrade will not be possible.

For those interested in learning more, Microsoft has provided a virtual launch Web site. Public launch will be in February 2009.

… David Sengupta

Last month, Microsoft shuffled around leadership in the Exchange and Windows Mobile teams. Part of this was undoubtedly just to keep things varied for the execs and product groups, but is there another reason?

We think Corporate Vice President Terry Myerson’s move to Windows Mobile is intended to bring his wealth of Exchange background – not to mention his success in driving Exchange to the leadership position among competitors – to bear on Microsoft’s strategy to compete with Research in Motion (RIM). BlackBerry continues to be dominant among key corporate decision makers, even though Windows Mobile market share has surpassed that of RIM in the past year. Our guess is that dealing a strong blow to BlackBerry will be one of Myerson’s objectives.

And we believe the expansion of Rajesh Jha’s portfolio from Office Live to include Exchange is intended to bring his proven track record with Software + Services to bear on the next version of Exchange – code named Exchange “14.” With Microsoft betting its future on Cloud Services (as further evidenced with the PDC announcement of Windows Azure), its success with Exchange Online – which in the future will sit on an Exchange “14″ back end – is paramount. Convince customers to treat messaging as a commodity and hand it off to Microsoft, and you have a powerful position from which to build out further Online offerings and tap into that holy grail of annuity revenues – software as a utility.

Overcoming customers’ addictions to their BlackBerries and getting customers to trust Microsoft Online with their email data are no small feats. Yet these are key pillars in Microsoft’s bid to build a moat around its massive Exchange revenue stream, and continue to build on the success of Microsoft Exchange in years to come.

… David Sengupta

Struggling economies bring challenges, but also opportunities. The IT world is ripe for a major shift, for three reasons:

• Economic concerns are driving IT departments to aggressively increase efficiency and reduce cost.
• Vendors have built vast SaaS infrastructures to enable outsourced messaging, collaboration, applications, and compliance solutions at a fixed cost (examples: Microsoft, Google, IBM, Amazon, Iron Mountain, LiveOffice).
• Server virtualization technologies — from Microsoft, Sun, VMWare, and in Linux distributions — have matured to the point where highly available, high-volume, and complex applications can be efficiently virtualized, at a savings of cost, space, administrative overhead, and energy consumption.

The state of the economy will have a catalytic effect on customer adoption of and migration to SaaS and virtual environments over the coming two years. Within the next three to five years, hosters will start using a combination of multitenancy and virtualization, to offer an always-on, always-available set of solutions to customers over the Internet.

Thus the state of the economy will greatly encourage customers to migrate to SaaS/cloud and virtual environments.

… David Sengupta, with Richi Jennings

Microsoft posted a job description on November 4 that sheds more light on its ExchangeLabs infrastructure than has previously been publicly released.

ExchangeLabs is Microsoft’s way of testing “the next version of Exchange in high-scale services environments.” To date, customers on the infrastructure are restricted to academic institutions with .edu domains. According to the posting, Microsoft has more than 1.5 million mailboxes hosted on ExchangeLabs today.

Standard end-user accounts come with 5GB of mailbox quota, which presumably means that Microsoft has allocated more than 7,500,000GB (7.5 petabytes) of storage for these users. According to the posting, Microsoft has been focused on “web-based management, integration with Live for provisioning and authentication, role-based management for administrators and end users, and seamless transition between on-premise Exchange deployments and hosted environments.” And the posting also claims that Exchange “14″ (code name for the next version of Exchange, which ExchangeLabs is running on) will provide the “first datacenter-ready web-management UI on top of Powershell.”

Given Microsoft’s $1.9B/year Exchange Server revenue stream, it is no surprise that Microsoft is investing heavily in SaaS — what some are now confusingly calling “cloud computing.” Microsoft is in a high-stakes battle over who will dominate the shift to SaaS.

Whatever way you look at it, there has never been a release of Microsoft Exchange with anywhere even close to 1.5M users running on preproduction code this early in the product lifecycle. And this number will undoubtedly increase substantially by the time Exchange “14″ ships. Microsoft is clearly bent on winning this race; on the face of it, the numbers so far are impressive.

… David Sengupta

On Oct 21, IBM announced Lotus Notes Hosted Messaging, the first in a wave of announcements around a strategic cloud services offering. No newcomer to the hosting arena, IBM has been providing custom outsourcing to customers for many years, and this includes hosted Notes, Domino, BlackBerry, and other business productivity applications. IBM plans to ship an iNotes version (IBM’s browser-based email) later this year.

IBM’s Notes Hosted Messaging offering comes in two flavors: one with a 99.5% uptime service-level agreement (SLA), and a clustered option with 99.9% uptime. Both are backed by financial commitments, and include email, calendaring, scheduling, and anti-virus and anti-spam services. Pricing (U.S.) is set at $108 and $150 per mailbox per year for the offerings above, which includes 500MB and 1GB of storage per user, respectively. A minimum purchase of 1,000 users is required, and IBM Lotus Quickr Entry is included with 50MB of storage. Customers must use the Notes client to access their email. Browser-based access will come in a hosted iNotes offering later this year.

IBM does not have a clearly articulated onboarding strategy to migrate customers from on-premises Notes or Exchange into their data center. At this point it seems that customers will need a dedicated VPN or MPLS connection to the hosted data center. In essence, with its lack of Web services support combined with the 1,000 seat minimum, IBM has turned its back on the SMB market, leaving SMBs to consider Exchange Online, Gmail, or a POP/IMAP solution.

This appears to be a counter to Microsoft’s aggressive Business Productivity Online Suite, notably Exchange Online. IBM claims to have native support for multitenancy in Notes Hosted Messaging, and will be scaling out its data center on powerful P-series servers. As of October 31, IBM had no customers on the new offering.

IBM is clearly behind Microsoft and will need to ship support for hosted iNotes, hosted Notes applications, hosted SameTime, and hosted archiving very soon if it is to mitigate the threat from Microsoft and demonstrate the ability to execute in a hosting market that is streamlining and standardizing rapidly.

… David Sengupta

earlyCASE recently launched its SaaS on-demand e-discovery solution for early case assessment.

earlyCASE lets organizations rapidly examine a subset of evidence to determine volumes and types of data, relative quantities of duplicates, numbers of different file types, and other analysis that can be extrapolated across the entire collection of data. In light of the current Federal Rules of Civil Procedure, this type of assessment capability is key to opposing parties having clarity on the scope, breadth, and depth at the earliest point possible in a case.

Technology

• Permits matter setup, early case assessment, 25+ reports, complete document inventory database, metadata extraction, PST/NSF/ZIP support.
• Hosted offering.
• Uses Microsoft “deployment on demand”; loads application locally into cache; checks for newer version every visit.

List Pricing

• Free version with restricted functionality.
• Pro run version licensed at $198 (U.S.) per run, payable by credit card.
• Enterprise license listed at $8,000 (U.S.).

Main Competition

• Clearwell, Wave Software, WorkProducts.

Company and Finances

• On market for 90 days; launched before ILTA.
• In business for approximately 18 months.
• Six people.
• Self-funded.
• Atlanta based.
• Profitable.

… David Sengupta

LiveOffice announced its Troubled Archive Relief Program (TARP) on November 4, which provides a “bailout” option for customers dissatisfied with their on-premises archiving solutions.

We frequently hear of customers using on-premises archiving solutions who have had issues in their deployments, been frustrated by high-impact or frequent index corruption issues, or are not getting the value they expected out of archives that just lock emails away without exposing the intellectual property they contain for reuse. This move is well-timed given the bailout fears in the economy, the increasing pressures on corporate budgets, and the groundswell of customer frustration in some camps.

As with all SaaS-based offerings, customers need to scrutinize service-level agreements (SLAs), ensure financial penalties are in place for measurable noncompliance with these SLAs, establish clearly documented e-discovery procedures and pricing up front, and understand what the offboarding process will be should they decide they want a bailout, well, from LiveOffice.

… David Sengupta