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7/9/2007
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Google Strengthens Its Enterprise Play With Purchase of Postini

Google aims to convince corporate IT managers that its software-as-a-service model can accommodate corporate security and compliance requirements.

Broadening its effort to win business customers from Microsoft and other traditional enterprise IT vendors, Google on Monday said it plans to acquire managed e-mail security company Postini for $625 million.

The deal represents Google's thirteenth acquisition so far this year, the company's most extensive shopping spree to date. One deal announced earlier this year, Google's planned purchase of Internet advertising company DoubleClick, awaits regulatory approval.

In a statement, Google CEO Eric Schmidt said, "With this transaction, we're reinforcing our commitment to delivering compelling hosted applications to businesses of all sizes."

The deal also reinforces Google's commitment to leading-edge technology. Since its founding in 1999, Postini has earned a reputation as one of the more technically sophisticated e-mail security providers. The company has been granted four patents related to managed message security.

"Postini is a very technically astute service provider, preferring to build its own core anti-spam and data center technology," Gartner analysts Peter Firstbrook and Arabella Hallawell wrote in a research note published last September. "Its e-mail processing is differentiated by all-in-memory processing rather than the store-and-forward method of rivals. Investments in fundamental data center design have led to lower costs and better margins -- as well as better adaptability -- than rivals."

Google's rival is the traditional enterprise software market, exemplified by Microsoft. By acquiring Postini, Google aims to convince corporate IT managers that its software-as-a-service model can accommodate corporate security and compliance requirements.

"We are going to continue to innovate and bring more and more applications and capabilities to business in the software-as-a-service type of model," explained Dave Girouard, VP and GM of Google's enterprise division, during a conference call. "We will, when this acquisition has closed, be able to deliver a more complete solution for security and compliance. And I think this will make the transition to hosted services even easier for customers."

Some of the customers making that transition may be abandoning Microsoft's ship. "Google is clearly saying to Microsoft, 'we're going to compete with you in your core business,'" said Forrester Research analyst Shar VanBoskirk, who sees the deal as a way for Google to gain access to the corporate desktop.

Google already has something of a beachhead on the desktop. It claims that its Google Apps suite -- Gmail, Calendar, Talk, Docs & Spreadsheets, and Personal Start Page -- has been adopted by more than 100,000 businesses already and that 1,000 small businesses are adopting Google Apps per day.

With about 450 million copies in circulation, Microsoft Office has something like 95% of the corporate productivity market. So it's fair to say that Google's software-as-a-service push has yet to seriously damage Microsoft's business, just as Microsoft's effort to break into online advertising has yet to seriously damage Google's business. But look for blood on the floor in the years ahead.

In keeping with its coyness about Microsoft, Google's list of frequently asked questions about the deal notes that rather than competing with Microsoft Office, "Google Apps is focused on collaboration and easy sharing of information."

As to how Google will leverage its relationship with Postini, Girouard said it was still too early to provide details. But he said that Postini will continue to offer managed e-mail security independent of Google's online applications. "Of course, we're going to make it as easy as possible and as tempting as possible for Postini's customers to try Google Apps," he said.

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