Google, Yahoo software moves may fuel Microsoft bid

SAN FRANCISCO Tue Feb 5, 2008 10:10am EST

A man checks his cell phone outside the Yahoo! booth during the Consumer Electronics Show (CES) in Las Vegas, January 7, 2008. Business software units of Yahoo Inc and Google Inc are introducing beefed-up versions of their Web-based software that compete with Microsoft Outlook, offering yet another clue why Microsoft Corp made a $45 billion unsolicited bid for Yahoo. REUTERS/Steve Marcus

A man checks his cell phone outside the Yahoo! booth during the Consumer Electronics Show (CES) in Las Vegas, January 7, 2008. Business software units of Yahoo Inc and Google Inc are introducing beefed-up versions of their Web-based software that compete with Microsoft Outlook, offering yet another clue why Microsoft Corp made a $45 billion unsolicited bid for Yahoo.

Credit: Reuters/Steve Marcus

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SAN FRANCISCO (Reuters) - Business software units of Yahoo Inc and Google Inc are introducing beefed-up versions of their Web-based software that compete with Microsoft Outlook, offering yet another clue why Microsoft Corp made a $45 billion unsolicited bid for Yahoo.

While Microsoft views Yahoo as its path into the lucrative Web advertising market dominated by Google, Tuesday's software announcements by Yahoo and Google demonstrate that Microsoft also needs to fend off potential challenges to its business software franchises.

Yahoo's new Zimbra Collaboration Suite (ZCS) 5.0 allows users to read Microsoft Outlook e-mail alongside Yahoo Mail or Google's Gmail or Zimbra's own branded e-mail.

In effect, Zimbra's upgrade lets users read work and personal e-mail side by side.

"We really think this is the next generation of Outlook that we are announcing," said Satish Dharmaraj, co-founder and chief executive of Zimbra.

Yahoo paid $350 million in September to buy Zimbra, a provider of e-mail, calendar and contacts software that competes with Microsoft and Google.

Around the same time, Google paid $625 million to acquire e-mail security firm Postini to beef up Google Apps to make it more useful inside businesses. Google Apps, a suite of software that competes with Microsoft Office. counts 500,000 organizational customers and adds 2,000 customers a day.

"We replace the old world of installing software and dealing with security patches and coming in late at night to restart computers," Scott Petry, founder of Postini in 1999 and now a Google product manager, said of his company's impact.

Postini is releasing new business security software that allows organizations to block spam, archive and encrypt e-mail and uphold corporate e-mail policies.

One Postini service for e-mail search and discovery overturns the need for network administrators to limit e-mail storage -- a source of frustration for many employees.

WEB-BASED CHALLENGERS

ZCS 5.0 can work offline and also allows users to use Zimbra on Apple Inc's iPhone. It also now works with Research in Motion Ltd's BlackBerry e-mail devices and Java-based phones, the company said.

Yahoo is using Zimbra to embed popular Web-programs -- such as Flickr photo-sharing, Web news feeds and Yahoo Finance or Yahoo search -- inside Yahoo Mail, the world's most popular consumer e-mail service.

Zimbra software is targeted at universities and small businesses and Internet service providers such as Comcast Corp and Indiatimes, which in turn can offer such e-mail services to millions of consumers.

Postini's services are hosted in Google's data centers, allowing Postini to offer its security services at dramatically lower cost than many existing e-mail security products.

Annually, Postini spam protection starts at 25 cents a month per user while message filtering costs $1 a month. The software can work with e-mail systems such as Microsoft Outlook, International Business Machines Corp's Lotus Notes or Novell Inc's Groupwise.

Office workers can search back through years of e-mail as a free side benefit when their companies buy Postini's legal discovery feature to meet compliance requirements of laws aimed at preventing white-collar crime. This feature costs $25 per user per year and $10 for each additional year of archiving.

"It is really a shot across the bow of a lot of vendors," said Michael Osterman of Osterman Research, a market researcher focused on e-mail and collaboration software near Seattle. "It puts a lot of pressure on pricing of other vendors."

(Editing by Derek Caney)

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