Message Systems Buys Rival Port25 Solutions To Create Email Infrastructure Giant

In a marriage of two email infrastructure rivals, Message Systems bought Port25 Solutions today for an undisclosed mix of stock and cash. With it, they have created a company that covers every email infrastructure need from small business all the way to mega messaging clients like social networks.

Message Systems CEO Phillip Merrick, says the acquisition gives his company unmatched coverage. It plans to incorporate Port25 as a stand-alone business unit inside Message Systems devoted to medium-to-large sized markets.

When I started looking at this deal, I mistakenly thought these companies might help deliver spam emails, but Merrick pointed out to me in an email exchange, that their services are about helping large organizations like Facebook, PayPal, financial institutions and so forth, deliver huge volumes of legitimate email to their constituencies, while ensuring the email actually hits its target.

“This is absolutely in the category of wanted email,” Merrick explained. “Everything from fraud alerts from your credit card company to the LinkedIn and Twitter digests you receive. Plus the newsletters you sign up for, and the retail promotions where you have specifically opted in.”

He added that his company works with others to help prevent spam and malicious emails.

“We have worked with major customers such as Twitter and LinkedIn, in conjunction with Google and others, to implement email security standards that make spam and phishing attacks far more difficult,” he said.

Message Systems’ roots as an independent company date back to 2008, but prior to that it was developed and sold by a consulting company. In total, Message Systems has been offering these services for over 15 years. Merrick says his company has been so successful in this space, he claims it moves 23 percent of the world’s legitimate email, and now with the acquisition of Port25, that number will be even higher.

With Port25, Message Systems gets its 1,000 customers, which include Salesforce’s marketing cloud, CNN, New York Times Digital and many others. It also obtains a contrasting product that companies can download and install without a lot of help. Message Systems is installed in the data center and that usually involves a more complex implementation.

Port25’s CEO, John C. Karpovich explained that combining the two companies brings a range of services that would not have been possible, had they remained stand-alone entities.

“While Port25 built and was very successful at selling an easy-to-use on-premise email product (mostly to medium-to-large senders), with the two companies combined, we now have email infrastructure offerings for senders of any size — from small to mega large senders in their choice of deployment — on-premise and in the cloud,” he wrote in an email.

But perhaps the underlying reason behind this purchase was a classic case of trying to stave off disruptive forces in the marketplace — in this case, SendGrid, a cloud-based email infrastructure startup making waves in the market. SendGrid doesn’t have a huge market in terms of message volume — around two percent, according to the company website — but it’s picking up many of the emerging startup business such as Uber, Pinterest and Spotify and this is an area Message Systems very badly wants. According to SendGrid, that two percent marketshare adds up to 14 billion emails per month.

“We obviously want to maintain our leadership and transfer leadership in data center technology to the cloud and SendGrid has an interesting start with about [180,000] startups using their platforms,” Merrick said.

While Message Systems has a cloud offering called SparkPost, which Merrick pointed out has been doing very well, both companies are primarily on-premise offerings. Merrick hopes to change that by expanding its cloud coverage moving forward, presumably to put it in a better position to keep SendGrid at bay.

Message Systems has raised $38M in two rounds, the most recent being $32M in Series B in June, 2012. Port25 Solutions has been around since 1999 and never taken any funding.

Coincidentally, Merrick says, the two companies are only four miles from one another just outside of Washington, D.C. Message Systems also has a San Francisco office. Message Systems, which has 150 employees, plans to incorporate all 13 Port25 employees as part of the deal.