Update: Google to buy Postini for $625 million

Google has agreed to buy messaging security company Postini for $625 million, a move intended to increase the appeal of Google's hosted software applications among big businesses, the companies announced Monday.

Postini provides on-demand security, archiving, and policy enforcement services, primarily for e-mail and instant messaging systems, to about 35,000 business customers worldwide. Google will use the technology to boost the security and compliance features of Google Apps, its hosted suite of productivity software.

Around 1,000 businesses are signing up for Google Apps each day, according to Google. But the company admitted that big businesses have been reluctant to use hosted services because of concerns about security and corporate compliance issues. It hopes that buying Postini will help relieve those concerns.

Google Apps customers will be able to use Postini services for tasks like scanning and encrypting e-mail, and archiving messages for compliance and legal purposes, said Dave Girouard, vice president and general manager for Google's enterprise business, in a conference call.

The cash deal is expected to close by the end of the third quarter, he said. Google will make Postini a wholly owned subsidiary and continue to support its customers and invest in Postini's products, the company said.

The acquisition will take Google a step deeper into the enterprise IT market and increase its rivalry with Microsoft, whose Office applications are a mainstay among businesses today. Google launched the Premier Edition of Google Apps in February, priced at $50 per user, including service-level guarantees and around-the-clock support.

Proponents say such hosted services reduce costs for businesses because they don't need to patch and upgrade software in-house or buy dedicated hardware on which to run it. But critics point to concerns about the security and availability of hosted services, and the inability to access information when users are offline.

Google Apps ran into problems in March when early customers complained that Google wasn't meeting service availability agreements. Girouard said those problems have been resolved. "We've had a very good record overall and we're always looking at our infrastructure and our processes to avoid or minimize outages," he said. "There will always be more we can do."

One of the first things potential customers ask about is offline access to applications, he said. The search giant expects to use Google Gears, a browser extension it released in May for viewing Web pages offline, to address the problem in Google Apps, according to Girouard. "It's certainly an objection today and it's something that we're addressing," he said.

The company will likely add new applications to its suite in the future, Girouard suggested. Asked what additional back-office functionality the company needs, he answered, "As the set of applications in Google Apps grows out over time, there may well be more back-office functionality that we require."

Google Apps includes e-mail, calendaring, instant messaging, word processing, and spreadsheet applications. The company is currently offering a free, 30-day trial offer for the paid Premier Edition.

Postini, with headquarters in San Carlos, Calif., was founded in 1999. It is a privately held company and has been profitable since 2004. Executives on the call stressed cultural similarities between the two California-based companies and their shared goal of delivering software as services.

The merger will "fundamentally accelerate the adoption of software as a service," Scott Petry, Postini's co-founder and chief technology officer, said on the call.