When Gmail came up with their ‘labels’ concept as opposed to ‘Folders’, many people loved it. On the other hand, many people didnt prefer it too. People are used to folders approach and labels concept is a jump to a new way of organizing which some are comfortable with and some are not.
In my view, labels and folders should co-exist. It is not one or the other. It is both. Just let the user choose what he wants. Why should the product control what the user should use? It should just provide an option for the user to choose the prefered way.
So we decided to implement both concepts. Here are screenshots of both.
Interesting point to note is, there is no other webmail system (as far as I know) apart from Zoho which supports both folders and labels concept.