Google buys e-mail security firm

SAN FRANCISCO: Google buying specialist in e-mail security and management

Taking aim at one of Microsoft's core franchises, Google said that it would acquire the e-mail security and management company Postini for $625 million in cash.

The deal, announced Monday, underscores Google's ambitions to become a serious player in the business of selling software to companies and organizations, in competition with Microsoft and others.

Google, which earns the vast majority of its profits from selling ads it places next to search results and on sites across the Web, has increasingly emphasized its small but rapidly growing software business.

Earlier this year, Google's chief executive, Eric Schmidt, said the company's strategy was made up of three components: "search, ads and apps," or applications, meaning software programs.

As part of that strategy, Google has been trying to persuade businesses to replace existing e-mail systems and other programs with the company's own package of business software.

That package, called Google Apps, includes the Gmail service; an online calendar, and programs that can read and edit documents created with Microsoft's Word and Excel programs.

But many businesses - especially large ones - remain leery of moving some critical functions like e-mail to Google's programs, which, unlike traditional business software that resides on corporate networks, are delivered as services over the Web and are considered less secure.

The acquisition of Postini, a private company whose products allow businesses to control spam and viruses, and help them to monitor and preserve e-mail messages to comply with regulations, is an effort by Google to allay some of those concerns.

"In bigger businesses, security and compliance requirements are a must," said Dave Girouard, Google's vice president and general manager for enterprise.

If completed, the deal would be the third-largest acquisition in Google's history, after its planned $3.1 billion purchase of the online advertising company DoubleClick and its $1.65 billion deal for the video site YouTube.

Google and other companies say that software will increasingly move to the Web and will often be free and supported by advertising.

Over the last year, Google has pursued that vision with efforts to turn some of its Web programs, which are popular with consumers, into business tools.

Last year, the company began to offer companies, academic institutions and nonprofit organizations a version of Gmail and other business applications at no charge.

In February, Google packaged a broader set of business programs, including a word processor and spreadsheet, into Google Apps and began charging businesses $50 a user annually for a version that includes customer support.

By comparison, the market researcher Gartner estimates that businesses pay on average about $225 a person annually for Microsoft Office, which includes Word and Excel, and for Exchange, the widely used corporate e-mail program.

Microsoft, for its part, has sketched out a future in which business programs are likely to become a hybrid of desktop software and Web services.

Moving in that direction, Microsoft acquired FrontBridge Technologies, a Postini competitor, in 2005, and offers that company's products as Web services. And while its core e-mail Exchange products are still programs that it sells and that customers must install on their networks, some Microsoft partners offer Exchange as a Web service.

Microsoft downplayed the notion that Google's acquisition of Postini would create more competition for Exchange and other Microsoft applications.

"What we are hearing from our customers is that they are looking for an experienced solutions provider," said Roger Murff, director of marketing for unified communications services at Microsoft. The deal is "further validation that we are doing the right thing and have been doing the right thing for several years," Murff said.

For now, Google's efforts to make inroads into the $2.5 billion corporate e-mail business remain just that. The company said more than 100,000 businesses were using Google Apps, but it will not say how many of them are using the pay version. Meanwhile, Microsoft's e-mail products are used by 62 percent of corporate users, and IBM's by 26 percent, according to Gartner.

Web e-mail services like Gmail likely will not be a significant force in the corporate market until 2010, when they are expected to become the first choice of 8 percent of corporate users, according a Gartner forecast in January.

"Google has a long ways to go before they become a strong competitor to Microsoft" in business software, Chenxi Wang, a principal analyst with Forrester Research, said.

Still, the size of the deal underscores how important the corporate software market is for Google.

"Google wouldn't spend $625 million on something that they didn't think would be a material opportunity for them," Mark Mahaney, a securities analyst with Citigroup, said. "It really fits into Google's world view of being a repository for all users's - including business users's - information."