Google swoops up web security business in new challenge to Microsoft.
New York — The Internet Google said on Monday it has agreed to acquire e-mail security company Postini for $625 million in cash expanding its package of online applications to compete with Microsoft’s Office software.
A move that the search giant hopes will help lower a key hurdle to broader adoption of its on-demand, Web-based applications targeted at business users.
Privately held San Carlos, Calif.-based Postini provides on-demand Internet security and encryption services, protecting instant messaging, e-mail and other hosted security solutions, to more than 35,000 businesses and 10 million users worldwide.
The company announced earlier this year that it was working with Google to develop security solutions for Gmail accounts. The company processes more than 1 billion messages per day.
Broader Appeal
Google said the deal could enable it provide organizations with more hosted services similar to its Google Apps package, which includes its e-mail service Gmail, Calendar, and Talk, its messaging service.
“With this transaction, we are reinforcing our commitment to delivering compelling hosted applications to businesses of all sizes,” said Google chairman and chief executive Eric Schmidt.
“With the addition of Postini, our apps are not just simple and appealing to users – they can also streamline the complex information security mandates within these organizations.”
“It is still a relatively small business for them, but we note they spent something like $750 million to $1 billion this year in acquiring companies to boost its efforts in the software and application space,” said Marianne Wolk, analyst at Susquehanna Financial.
Google has been expanding its range of services from Web search and advertising to include popular software applications for businesses, such as word processing, putting it in direct competition with Microsoft’s Office package of applications.
Google Apps has been signing up more than 1,000 small businesses daily and been adopted by more than 100,000 businesses since its launch last August, the company said.
Google, which has been diversifying away from its core in search and advertising, aims to make the Google Apps package attractive to large businesses by adding security and compliance applications from Postini.
“This is definitely about us moving into the enterprise (market) more quickly and with a larger footprint,” Dave Girouard, general manager of Google Enterprise, said in an interview. “This is a set of capabilities required before a business would think about moving its e-mail or IM on to a hosted service.”
Until recently, many businesses were not comfortable with the on-demand model, though the success of companies such as Salesforce has started to change that. Still, most large businesses have invested heavily in hardware and software configurations to enable traditional, on-site applications.
Larger businesses, meanwhile, have been reluctant to embrace the hosted application approach due to security and compliance issues. The Postini solutions will enable those businesses to get the higher level of security and compliance they need, Girouard added.
“This is a clear statement that we are very committed to this business,” Girouard said. “We are going to continue to innovate and bring more and more applications and services to businesses.”
While much has been made of Google attacking Microsoft’s turf with its Apps lineup, Google is also expanding the universe of potential users for business productivity applications, Forrester Research analyst Kyle McNabb told the E-Commerce Times.
“People who have never had access to those kinds of productivity tools now have them at their fingertips,” McNabb said. Combined with the release of a new Office suite and other developments, the Google push is helping to spur new innovation in office productivity products, he added. “The impact goes beyond the adoption rates.”
Schmidt and other Google executives said earlier this year the company would continue to make acquisitions where they made strategic sense for the company.
The Postini buy is the third-largest takeover for Google, behind the $3.1 billion it paid for interactive advertising firm DoubleClick in April and the $1.65 billion YouTube deal made last year.
More recently, Google has focused its acquisitions on business-related tools and services, buying smaller firms such as the video-conferencing business of Marratech and another security-software maker, GreenBorder Technologies.
Google’s Enterprise unit announced late last month it had signed a deal to have Ingram Micro act as a distributor of its Google Appliance and Google Mini search tools. Last month it also bought Feedburner, a Web media distributor and formed an alliance with Salesforce.com Inc., a Web-based marketing software maker.
Google also recently launched a service called Google Gears that allows Web-based applications such as e-mail and calendars to work when users are offline.
“By adding Postini products to Google’s technology, businesses no longer have to choose — employees get the intuitive products they want, and the company achieves the security and assurance it needs,” said Girouard, in a statement.
Google investors backed the announcement by driving the company’s already high-flying stock to new highs on the news.
Postini executives said they aim to develop suites of new security products with Google capabilities.
“The network scale and the data in fundamental Internet trends you might have in looking at some of the data Google has is definitely going to make us combine products much better,” said Scott Petry, founder of Postini.
The eight-year-old Postini had received several rounds of venture funding, including a $10 million fourth round late in 2003, from August Capital, Bessemer Venture Partners, Mobius Venture Capital, Pacifica Fund, Summit Partners and Sun Microsystems Inc.
The San Carlos, Calif.-based Postini, with a staff of about 300, will become a wholly owned subsidiary of Google. Google said it will continue to support Postini customers and invest in Postini products. The agreement is subject to customary closing conditions and is expected to close by the end of the third quarter 2007.
Google shares traded up about 1 percent in late morning trading Monday to $544.91, a price that would mark a new all-time high closing price.