Google goes for the enterprise with Postini bid

Google gets hosted e-mail, Web, compliance, instant messaging, encryption and archiving services

While Google’s plans to buy e-mail security service provider Postini clearly are designed to give the search giant some much-needed enterprise allure, the move also means one less independent player in the messaging security market – an arena once flooded with startups that now is being picked apart by giant vendors looking to plug the holes in their product line.

Google’s $625 million bid for Postini -- which would make the security company a wholly owned subsidiary -- is a good move for the acquirer, says one analyst.

“It’s a reasonable acquisition for Google, given the perception of security concerns among large enterprises -- they want to make sure any vendors they work with have enterprise-level security,” says Rebecca Wettemann, vice president of research at Nucleus Research. “This gives them a very clear message for those folks who have concerns about enterprise security.”

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While Google’s plans to buy e-mail security service provider Postini clearly are designed to give the search giant some much-needed enterprise allure, the move also means one less independent player in the messaging security market – an arena once flooded with startups that now is being picked apart by giant vendors looking to plug the holes in their product line.

Google’s $625 million bid for Postini -- which would make the security company a wholly owned subsidiary -- is a good move for the acquirer, says one analyst.

“It’s a reasonable acquisition for Google, given the perception of security concerns among large enterprises -- they want to make sure any vendors they work with have enterprise-level security,” says Rebecca Wettemann, vice president of research at Nucleus Research. “This gives them a very clear message for those folks who have concerns about enterprise security.”

With the acquisition, Google gets the nuts and bolts of Postini’s security technology -- including hosted e-mail, Web, compliance, instant messaging, encryption, and archiving services -- that Wettemann expects Google will extend to its own suite of on-demand applications, including Gmail, Calendar, Talk, Docs & Spreadsheets, and Personal Start Page.

Google also gains access to Postini's 35,000 customers -- many of them in the enterprise space -- including Circuit City Stores, Hormel Foods, Merrill Lynch, and a host of prestigious law firms. Although Google claims more than 100,000 businesses are using Google Apps already, the company itself admits the vast majority of those are small businesses.

With this acquisition Google “gets the names of 35,000 e-mail administrators who are already predisposed to software-as-a-service,” says Peter Firstbrook, research director with Gartner. Previously the most contact Google had with enterprises was related to search or portal technology. “Now they’ve got the contact information of the people who are exactly the people they’re going after,” he says.

In addition, Postini can teach Google how to deal with corporate customers. “Google has deep pockets, and tends to kind of shoot in all directions to see what sticks to the wall; that’s not what enterprises want,” Firstbrook says. “Postini has to instill some enterprise business discipline into Google. In enterprises they don’t want new features by the week, and if they don’t work oh well, they want a road map and direction.”

The acquisition is good news for Postini and its customers as well, Firstbrook adds. Although Postini is a profitable private company, its executives have been looking for a buyer or an IPO opportunity, and that can take away from it's focusing on technology.

“Now they can take their eyes off of capital raising and get on with running the business,” says Firstbrook, noting that Google has said it will operate Postini as a subsidiary instead of breaking up its technology and attempting to assimilate it.

Google’s acquisition of Postini marks the third major grab for a messaging-security vendor in the last twelve months; Cisco’s $830 million acquisition of e-mail security appliance maker IronPort closed last month, and last September Secure Computing bought e-mail-security appliance maker CipherTrust for $274 million. These moves leave the e-mail security market – once chock-full of startups touting new antispam, antivirus, and other malware-fighting technologies – dominated by a few large vendors: Cisco, Microsoft (which purchased messaging-security service provider FrontBridge in August 2005, Symantec and now Google.

Add competitors McAfee and Trend Micro, and the market becomes a place where independent companies will have a hard time competing, given the depth of pockets and breadth of distribution channels these companies boast, Firstbrook says.

Yet Proofpoint, one of the few independent competitors left in this market with a significant enterprise customer base, believes differently.

“Because the threats evolve so quickly, rapid innovation and continued, specialized focus on e-mail security is required to stay on top of the market. Historically, the bigger companies that have acquired e-mail-security vendors have not performed well on this front,” says Gary Steele, CEO of Proofpoint. “Independent vendors have done a much better job of staying ahead of new threats.”

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