Presto! Google Gobbles Postini

There's nothing up Google's (Nasdaq: GOOG  ) sleeve, save another round of acquisitive parlor magic. The dot-com giant is buying on-demand applications specialist Postini in a $625 million deal.

Sure, cash-rich Google has made bigger nibbles in recent months. It acquired YouTube for a little more than twice Postini's sticker price. It's in the process of buying DoubleClick for roughly five times more than it is spending on this morning's deal. However, today's deal is more valuable in gauging where Google is heading.

YouTube and DoubleClick are both logical moves, given Google's desire to grow its reach in display advertising. For a company that consistently derives 99% of its revenue from ads, these deals put more of its eggs into an even bigger basket.

The Postini deal poses a more intriguing perspective on the long-term aspirations of Google's brain trust. In a nutshell, Salesforce.com (NYSE: CRM  ) should start watching its back.

Next stop, Salesforce
Postini specializes in providing Web-hosted security solutions, mostly for email and instant messaging applications. That's nothing like the enterprise solutions Salesforce offers; the on-demand pioneer excels at serving up customer relationship management functionality through the Internet.

Hear me out, though. Google's attempts at on-demand solutions have been tough sells with major corporations, by its own admission. Google Apps -- the company's suite of hosted productivity applications like email, spreadsheets, and word processing -- has landed hundreds of universities. It signs up more than a thousand small businesses daily. But big companies have been hesitant.

Google lists a variety of reasons for the fat cats' aversion to its nascent offerings. From internal security mandates to legal discovery requirements, there are just too many barriers to clear before these firms toss copies of Microsoft's (Nasdaq: MSFT  ) Office into the corporate dumpster.

Buying into Postini is a move to beef up Google's on-demand street cred. After all, Salesforce doesn't have a problem signing up the country's top companies. Postini is no slouch, either. It's got more than 35,000 companies on board as it cleans up cyberspace communications for more than 10 million users.

In short, Google is hoping that Postini will be the springboard Google Apps needs to catapult over to the grown-ups' table in on-demand applications. What's to stop it from making a bigger play in enterprise software once it gets there?

Committed to committee
"Commitment" is a word Google's throwing around today as freely as a deck of playing cards from a magician's sleeve. "With this transaction, we're reinforcing our commitment to delivering compelling hosted applications to businesses of all sizes," CEO Eric Schmidt stated in this morning's press release. The deal is a "clear statement that we're very committed to this business," the company announced during a subsequent press conference to discuss the deal.

Where does this commitment end? Once Google reaches the Fortune 500 companies that once chuckled at Google Apps, what's to stop it from moving into the lucrative space of CRM applications?

Don't tell me that Google wouldn't do this to an ally. Google and Salesforce have been buddies since Salesforce launched a service to make sponsored ad campaigns more effective through Google's contextual marketing AdWords platform. But if it's more lucrative for Google to go it alone, it will. Hooking up with Sun Microsystems (Nasdaq: SUNW  ) two years ago to promote StarOffice didn't stop Google from collecting the pieces to build its own Web-hosted suite of productivity software.

Salesforce, and ultimately enterprise titans like Oracle (Nasdaq: ORCL  ) and SAP (NYSE: SAP  ) , may not seem to be in Google's crosshairs at the moment, but just give the company a chance to reload. Postini is no Houdini, but if it helps corporate roadblocks disappear at Google, you really don't have to guess at what the search giant's next round of street magic will bring.

Further Foolishness, as if by magic:

Microsoft has been singled out as an Inside Value stock pick. Find out why with a free 30-day trial subscription to our value investing newsletter service.

Longtime Fool contributor Rick Munarriz, a huge Google fan, actually belonged to the International Brotherhood of Magicians for a few years. He does not own shares in any of the companies in this story. The Fool's disclosure policy suffers from a surplus of white rabbits.


Read/Post Comments (0) | Recommend This Article (3)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 530896, ~/Articles/ArticleHandler.aspx, 12/18/2014 4:42:39 PM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...


Advertisement