Google to buy Postini for $625 million

Google Inc. agreed Monday to buy e-mail security company Postini for $625 million, underscoring the search giant's increasing rivalry with Microsoft in business software.

The all cash deal is aimed at beefing up Google offerings for the workplace, which already include e-mail, calendaring and documents.

Google, in Mountain View, started seriously going after corporate customers earlier this year, when it released a package of office products called Google Apps Premiere Edition that cost $50 per user annually. However, the bundle has yet to catch on with large corporations, which demand the kind of highly secure e-mail, encryption and archiving that Postini offers.

Dave Girouard, vice president and general manager of Google's business division, said that the acquisition will allow companies to get their software from a single vendor, rather than separately. Previously, Google offered Postini's software as part of a partnership between the two companies.

"We were dating back then, now this is marriage," Girouard said.

Google claims at least 100,000 customers for its business software, though that number is unreliable because it hasn't been updated for more than six months. At least 1,000 new clients sign up for the package daily.

However, the figures include both the paid Premiere Edition and a free version of the software, which is supported by advertising. Google declined to provide a break down between the two.

Postini, in San Carlos, is a private company that was founded in 1999 and once flirted with an initial public offering. But the company ultimately decided to be acquired, something its chief executive, Quentin Gallivan, attributed to Google's infrastructure, ability to get Postini's products to more customers and its international reach.

Postini has 35,000 customers. Overlap with Google's customers, according to Google, is small.

Google has shown increasing ambition in the business software market, an area dominated by Microsoft and its Office software suite, as a way to maintain its rapid growth. Google's advertising business, although still strong, will eventually become more difficult to expand given its already large size.

As a point of differentiation, Google is marketing its business software as more convenient because it is hosted online with Google, rather than requiring a download. Therefore, Google's products are accessible over any Internet connection and not tied to a single computer.

However, analysts have given Google mixed reviews for its nascent efforts, because of shortcomings that make its products incompatible with Microsoft's far more popular Word documents, for instance. The availability of advanced features on Google's products is also limited, according to many analysts.

Chris Le Tocq, an analyst for Guernsey Research, said that Google's acquisition of Postini will reassure potential customers that it is serious about business software, a worry for some customers given Google's focus on search and online advertising. Still he was skeptical.

Companies that adopt Google's software probably would still have to buy Microsoft's software, simply to communicate with the vast number of businesses that don't use Google's products. Costs would therefore go up, not down, defying Google marketing its products as a cost saver.

Le Tocq called Google's efforts "more of a proof of concept than a functional reality."