Xobni

I’m excited to announce RRE’s investment in Xobni. We recently led a round along with Khosla Ventures, and are thrilled to be joining the Xobni team as they continue to make email better and more useful.

This is a personally satisfying announcement for me. Those who know me well know that I’ve long admired Xobni and that Will (who joins the board in connection with our investment) and I have been looking for an opportunity to be involved with this company for almost two years. I had reached out to the Xobni folks back in 2008 shortly after I joined RRE. We look for big, unsolved problems at RRE, and I consider email to be one of them. Xobni was in between its Series A and Series B rounds at the time, but I immediately got why the company’s approach to people-centric email tools could be extremely valuable and could make users’ lives far better.

I think people see what’s on the horizon and forget the road they’re actually on. This is the only way I can rationalize the number of people I hear say “email is dead” or “social networks are the only things that matter”. I spend much of my day in email. My wife, whose professional life couldn’t be more different from mine (she’s in education) spends much of her day in email. My brother, a software developer, spends much of his day in email. My mom, a small business owner, spends much of her day in email. People spend more of their time in their email clients than any other single functional area. While there’s no question that social networking volume continues to rise (and yes, it now has more “global users” than email, whatever that means), email itself also continues to rise every year and the curve is steep.

Furthermore, email is the source of great user pain for most of us. We get too much of it. It’s hard to find things. You sent me an attachment two weeks ago but I don’t remember what it was called or to which of the 25 emails in a thread with the same “re:…” title contained it. I need your number but it’s not in your signature. I know you sent to me, but no idea when.

Xobni solves a hundred small problems and a few big ones. I use it every day throughout the day. I find it so useful that despite being a Mac native going back to the 80s, I live in a Windows environment at work. The recent Blackberry product, which goes through all my email and organically assembles a contact manager based on who actually emails me and the contents of their email (as opposed to who I remember to add and what data I include) almost has me willing to carry two phones. I am enthusiastically awaiting new Xobni products for the different mail environments in which I live besides Outlook.

Our belief is that Xobni has a half dozen viable ways to become a large profitable company. Some of the revenue-generating products are already in the market (Xobni Plus was an easy sell for me, and I bought it well before we were investors in this round; the Blackberry and Xobni One products are compelling, and the company is in the market with a well-received enterprise version), others are still on the roadmap. But ultimately our view is that when you alleviate massive user pain, your user base is primarily business users who live that pain every day, and you have a team as extraordinary as the one assembled at Xobni, the result is very significant value creation. I’m delighted to welcome Jeff and the Xobni team to the RRE family, and look forward to continuing to build a great company.

Barnacle Companies

From time to time we see a company come in to pitch RRE that pitches us on a business that is fundamentally dependent on another (typically larger) business. An example of this would be Xobni, the (very useful) inbox extension for Microsoft Outlook. But it’s not always a big company (think Summize, the search company recently acquired by Twitter). We sometimes call these companies “barnacles” because of the way these companies latch onto a larger host and add incremental value to users of the host company’s products. This is becoming more and more common as companies either actively promote an application infrastructure built on top of the core platform (Salesforce.com, iPhone App Store, Facebook Platform) or as companies simply open up API access to allow other applications to take advantage of functionality or data.

There are pluses and minuses to these types of businesses, and like everything we see, the ultimate decision of whether or not it’s a business we’ll want to fund comes down to the strength of the people and how big a problem their product purports to solve. But barnacle businesses have some specific characteristics to them that are distinctive.

GOOD: Barnacle companies don’t have to build an ecosystem of interest to support their products.  Xobni, to continue our example (and note that we are not investors in Xobni) doesn’t have to convince millions of users to use Outlook – Microsoft has already done that. They just need to convince existing Outlook users to install their product to enhance productivity. Now that’s not the easiest sell in the world, especially given the IT attitudes present in many large Microsoft environments, but it’s a lot easier than trying to build the ecosystem from scratch.

BAD: The flip side to the above, of course, is the vulnerability barnacle companies have to host companies. When your business is entirely dependent on another company, that company has substantial power over you. That can come in the form of a decision to duplicate your functionality, at which point you rely on any IP you might have or the stickiness of your product, or to modify their product (or API) to block you. If the host company decides to prohibit one of these products from attachment, the startup can find itself adrift at sea.

GOOD: There is no more obvious acquirer for a barnacle company than the host.

BAD: There may be no other acquirer for a barnacle company than the host, so be very careful to establish a good relationship.

In an era where a greater and greater number of ecosystems are being built (Microsoft, Facebook, Salesforce, etc…) it is becoming increasingly feasible to build a business that is a barnacle, but these come with an unusual set of challenges, and require some careful maneuvering, particularly around fundraising and exit.