Google Takes New Step into Microsoft Territory

When Google CEO Eric Schmidt said his company would focus on three key areas--search, ads, and apps--most people understand that he gave precedence to the first two items on that list. But increasingly, Google has been making moves in the applications space, and its recent $625 million purchase of Postini, a company that makes email security and compliance software, marks an ever more aggressive move into the traditional business software space that's traditionally been dominated by Microsoft.

The all-cash deal for Postini comes after a year-long agreement during which Google licensed Postini software to protect its email-based Gmail and Google Apps services. Gmail is used by millions of individuals around the world, but the Google Apps service is increasingly popular with a growing number of small and medium-sized businesses. With the Postini purchase, Google can augment Google Apps to include the regulatory compliance piece that larger businesses require, making the service more valuable to a wider range of customers.

In addition to bolstering its corporate service offerings, Google will continue to sell Postini's other software offerings. The company's products are sold to corporations to protect third party email servers, including those running Microsoft's Exchange. Postini says it has over 35,000 corporate customers servicing over 10 million users.

While the future is uncertain, Microsoft has little to lose in the short term: Exchange Server currently controls about 62 percent of the $2.5 billion corporate email market, compared to 26 percent for IBM. According to analysts, Google and other Web mail suppliers could secure as much as 8 percent of that market by 2010.

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