Why Did Google Let Yahoo Run Off With Xoopit?

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Yahoo has acquired e-mail startup Xoopit for a reported $20 million according to multiple reports. The deal, which was first reported to be in the final stages of closing earlier this morning by the Wall Street Journal, is expected to be announced at Fortune’s Brainstorm Tech conference as early as tomorrow.

Xoopit essentially offers an easy way to organize and manage e-mail, having invented an indexing architecture similar to web search engines that helps users retrieve content from their archived e-mail, including attachments.

The startup raised a total of $6.5 million to date, securing seed funding amounting up to $1.5 million back in December 2006 and raising $5 million more from Accel Partners and Foundation Capital in April 2008.

Ever since its public launch, the startup has been focusing a lot on ‘upgrading’ Gmail, bringing an enhanced media search feature and direct Facebook connections to Google’s free webmail service. In fact, their focus was so clearly set on Gmail that the startup’s ‘About’ page currently speaks of nothing but the webmail service and how it improves its users’ experience in terms of e-mail management.

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Sure enough, Xoopit was also a featured app on the Yahoo Mail applications platform since the latter debuted last December, but I can’t help but thinking it should have been Mountain View pulling in Xoopit instead of Sunnyvale.

Think about it: Gmail and by extension Google Apps are core products for Google, which is in essence a search engine company. Xoopit enhances the search functionality of their web-based e-mail service. You’d think it’s a no-brainer for Google to go after the startup if they knew its management and investors were open to a sale.

And if the selling price was really only $20 million, it’s not the money that would make Google think twice. With a bottom line like Google’s, an acquisition of this size is basically pocket change for the company, and yet they’d be picking up an agile startup creating a product that’s highly relevant to their core service offering. Furthermore, it’d make for a great talent buy, if only for the startup’s founders Bijan Marashi (ex-Telecom Italia, Inktomi and Microsoft) and Jonathan Katzman (former exec at TellMe Networks and also an ex-Softie).

Kudos to Yahoo for snapping up Xoopit – I realize it makes sense for them too – but why didn’t Google make this move?

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