NEW YORK (Reuters) - Google Inc. said on Monday it has agreed to buy Web-based security provider Postini for $625 million, expanding its package of online applications to compete with Microsoft Corp.'s Office.
Privately held Postini provides security and encryption services, protecting instant messaging, e-mail and other communications, to more than 35,000 businesses and 10 million users worldwide.
The deal will help Google provide larger organizations with more Web-based services similar to its Google Apps package, which includes its e-mail service Gmail, word processor, spreadsheet and business presentation software.
"It's still a relatively small business for them, but we note they spent something like $750 million to $1 billion this year in acquiring companies to boost its efforts in the software and application space," said Marianne Wolk, analyst at Susquehanna Financial.
The online search leader was among the first companies to make business software applications available over the Web, getting its suite of Office products widely deployed ahead of larger rival Microsoft, which plans a more Web-based focus for its Office franchise.
Google Apps has been signing up more than 1,000 small businesses daily and been adopted by more than 100,000 businesses since its launch last August, the company said.
Google, which has been diversifying away from its core in search and advertising, aims to make the Google Apps package attractive to large businesses by adding security and compliance applications from Postini.
"This is definitely about us moving into the enterprise (market) more quickly and with a larger footprint," Dave Girouard, general manager of Google Enterprise, said in an interview. "This is a set of capabilities required before a business would think about moving its e-mail or IM on to a hosted service."
Google also recently launched a service called Google Gears that allows Web-based applications such as e-mail and calendars to work when users are offline.
San Carlos, California-based Postini is backed by investors including August Capital, Bessemer Venture Partners, Mobius Venture Capital, Pacifica Fund, Summit Partners and Sun Microsystems Inc.
Postini executives said they aim to develop suites of new security products with Google capabilities.
"The network scale and the data in fundamental Internet trends you might have in looking at some of the data Google has is definitely going to make us combine products much better," said Scott Petry, founder of Postini.
Google said Postini will become a wholly owned subsidiary. The deal is expected to close by the end of the third quarter.
Postini is the latest in a string of acquisitions and alliances by Google in recent months, from its planned $3.1 billion purchase of Web marketer DoubleClick to a deal for Web calling start-up GrandCentral for an undisclosed sum.
Last month it also bought Feedburner, a Web media distributor and formed an alliance with Salesforce.com Inc., a Web-based marketing software maker.
Wall Street analyst firm Think Equity raised its price target on Google's shares to $700 from $620 on Monday.
Shares of Google rose 1 percent to $544.75 on the Nasdaq.