Google Expands Enterprise Offerings
with Postini Acquisition

| July 11, 2007 | Enterprise Security, Internet/Managed Services
| Competitive Intelligence Report

| Analysts: Andrew Braunberg, Amy Larsen DeCarlo

Event Summary

On July 9th Google announced that it has signed a definitive agreement to acquire Postini, a provider of on-demand communications security and compliance solutions serving more than 35,000 businesses and 10 million users worldwide. Postini's services -- which include message security, archiving, encryption, and policy enforcement -- can be used to protect a company's email, instant messaging, and other web-based communications. Under the terms of the agreement, Google will acquire Postini for $625 million in cash, subject to working capital and other adjustments, and Postini will become a wholly-owned subsidiary of Google.

Analytical Summary

• Current Perspective: Positive on Google’s acquisition of hosted messaging services provider Postini, because the company will gain a set of well-regarded e-mail filtering, compliance, and archiving services that it can use to bolster the security of its Google Apps productivity suite. Not only will this will this help make the managed Web-based offering more appealing to business customers, but bringing Postini into the fold will help Google compete head-to-head with more dominant players in the business applications market, including Microsoft.

• Vendor Importance: Moderate to Google because the company is determined to make hosted applications attractive to companies of all sizes and support for back office capabilities, such as security, is an important aspect of making this happen. This deal is also, obviously, of high importance to Postini, which finds a home at one of the largest and most innovative technology companies in the world today.

• Market Impact - Enterprise Security: High on the information security market because this is Google's second security acquisition in the last couple of months and this one clearly signals that the company is serious about acquiring the security technology it needs to provide not only traditional threat management but also broader security management and compliance capabilities.

• Market Impact - Internet/Managed Services: Moderate on the managed applications market, because the planned Postini purchase shows Google is serious about making a play to use the software as a service (SAAS) delivery model to compete for, and win over, the enterprise. Postini's managed messaging security and compliance services will provide Google with some major firepower it can use to contest Microsoft's desktop dominance.

Recommended Competitor Actions - Enterprise Security

• Security vendors need to take Google seriously as a threat. The company continues to be cagey about its plans and its desire to look at security products as a revenue generating segment of its business, but so was Microsoft for many years. Keep in mind that Google continues to deny that Google Apps are intended to be competitive with Microsoft Office.

• Google and Microsoft actually have several things in common as security threats. The companies have both been methodical in building up security capabilities and they are both focused on delivering security as a service. Both of these facts have important implications for competitors. The deep pockets of Google and Microsoft have changed the market dynamics of M&A activity in the security market and the emergence of Google and Microsoft as major players in the software as a service markets is likely to have an even larger impact on the market in the future as customer expectations evolve and vendor product development priorities shift.

• Postini competitors need to consider the possibility that Google might introduce versions of Postini security services that are available to users of Google’s advertising-supported applications. These would clearly not be enterprise customers but could certainly be consumers and even SMBs. If Google Apps supplanted Windows Office and “security” for Google Apps was provided at no cost, this would have a significant impact on the current structure of the threat management markets.

Recommended Competitor Actions - Internet/Managed Services

• Microsoft may dominate the business application market but the company cannot afford to ignore a rival as powerful or ambitious as Google is. The company, which offers its own hosted Exchange service and also sells software to hosting providers that deliver its applications using a software as a service model, needs to play up the stability and functionality of its own applications.

• Competitors such as Apptix, AT&T and Navisite that deliver a suite of managed application and collaboration services need to use the Postini acquisition as an opportunity to explain the advantage of using a third-party hosting provider. The companies should point to the stability of their offerings, and the value associated with stringent service level agreements.

• Companies such as McAfee and Symantec that provide hosted messaging and Web security solutions that compete against Postini should aggressively pursue existing Postini customers. The messaging security providers should actively promote their own capabilities and offer incentive packages to attract Postini clients.

Recommended End User / Customer Actions - Enterprise Security

• Existing Google and Postini customers should be pleased with this deal. Google Apps customers concerned with security can feel confident that Google is serious about addressing their security needs. Postini customers should feel confident that Google will continue to support and advance the Postini portfolio of services.

• Prospects should continue to consider both Google Apps and the Postini portfolio of security and compliance services and should expect that Google will continue to expand its security and compliance capabilities in the future with additional acquisitions.

Recommended End User / Customer Actions - Internet/Managed Services

• Businesses should continue to monitor Google’s progress is constructing a reliable set of online business applications. The Postini addition will provide a much-needed security boost, but most companies should look for a little more proof of the stability of the Google Apps before seriously considering a migration.

• Current Postini customers should ask for more information from Postini now and Google in the future, about how the acquisition will impact them. Business customers should seek out written guarantees that they will still have the option of purchasing the existing Postini services.

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