Technology

Google's Latest App: Postini


The acquisition of the security software outfit bolsters a product suite designed to loosen Microsoft's hold on business customers

Google has long coveted the pot of gold represented by Microsoft's business customers, those lucrative users of such applications as Outlook e-mail, Excel spreadsheets, and PowerPoint slide presentations.

In recent years, Google (GOOG) has been snapping up companies in hopes of replicating that suite of services, and it finally may be nearing a full quiver.

On July 9, Google said it is paying $625 million for security company Postini, which helps corporations and smaller businesses monitor e-mails and instant messages, encrypt information, and enforce company policies in such areas as the dissemination of confidential information. Google's third-largest purchase after YouTube and DoubleClick, Postini is the market leader in its field, with more than 36,000 companies using its products.

The software strengthens the grouping of services known as Google Apps Premier Edition, which includes Gmail, Calendar, GoogleTalk, Docs & Spreadsheets, and Personal Start Page. Launched in February and geared toward business users, Premier Edition has acquired a following of some 100,000 small-business customers (see BusinessWeek.com, 2/12/07, "Google Steps Into Microsoft's Office").

A Chaser to Tonic System

And it's adding new users at a rate of 1,000 companies a day, Google says. "We believe this will accelerate the adoption," Dave Girouard, vice-president and general manager of Google Enterprise, said during a July 9 conference call on the acquisition. As Google's family of business applications widens, larger businesses also may be more inclined to sample it as a means of cutting down on the number of vendors they use. Small businesses might appreciate a tool safeguarding them from security breaches and an incessant barrage of spam.

Postini is the latest in a string of deals bolstering Google Apps Premier. In April, Google acquired Tonic System, which offers online presentation software and is being incorporated into Docs & Spreadsheets, to compete mano a mano with PowerPoint. Tonic's software also helps people collaborate on presentations and other documents online.

And on July 2, Google acquired GrandCentral, a company that lets users view and manage phone calls and messages over the Web. The technology could enhance collaboration features of Google’s applications, particularly GoogleTalk, an instant messenger that's still relatively little used. "Now they have all the pieces," says Sandeep Aggarwal, an analyst with Oppenheimer & Co..

A Fighting Chance Against Microsoft

Google wants to use those pieces to grab a chunk of a $12 billion market for office applications dominated by Microsoft’s (MSFT) Office, IBM’s (IBM) Lotus and comparable tools from Apple (AAPL). Other companies angling for a slice of the business include Yahoo! (YHOO), Cisco’s (CSCO) WebEx, and startups like AdventNet, and Silveroffice.

Google currently books less than $40 million a year from Google Apps, according to analysts' estimates. That's just a sliver of the $10.6 billion in sales it generated last year. Yet Google is one of the few players that has a fighting chance of disrupting Microsoft's dominance. For starters, Google is aiming to offer easier-to-use versions of office tools. "Microsoft offers products that are very feature-rich, and 80% of the people only use 20% of the functionality" of those applications, says Aggarwal. Now, these 80% of companies might finally find Google Apps appealing. "We have a lot of respect for Google as a competitor," says Roger Murff, director for Microsoft's Unified Communications Group.

Google offers a version of Google Apps for $50 per account per year. Aggarwal says Google could scrap that fee and instead make money from delivering ads directly to a user's workplace, where people spend five to six hours a day working on Office applications. This may be the longest stretch of online time yet available to claim a user's attention. "This potentially gives them access to the enterprise inbox," says Shar VanBoskirk, an analyst with consultancy Forrester Research (FORR).

The Uncharted Enterprise

Yet Google still faces an uphill battle. "Google does not have its roots in delivering and selling products into the enterprise," says Joe Fisher, vice-president of product management at security software company Tumbleweed (TMWD), a competitor of Postini's. "Postini gives them only a little bit of that." Many corporations are leery of overhauling their entire suite of business software—much less swapping a trusted brand for an unproven up-and-comer.

Still, battling Microsoft on its own turf is a role Google relishes, and it's got plenty of time and money to keep adding to and perfecting its arsenal.

Kharif is a reporter for BusinessWeek.com in Portland, Ore.

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