It's got a funky name -- Urchin Software Corporation -- and is based not in the heart of Silicon Valley but instead in San Diego, California. Yet this privately held company has been able to snag more than 20% of the Fortune 500 to buy its Internet product.

Yesterday, the company announced it was selling out to Google (NASDAQ:GOOG). The financial terms were not disclosed.

Urchin develops so-called Web analytics software. Essentially, it analyzes traffic that comes to a website. It will divide users into segments, based on things such as geography or new versus returning visitors; spot bottlenecks in the conversion of users into customers; identify the most valuable customers; monitor the time users spend on the site; and so on.

Like (NYSE:CRM) and RightNow (NASDAQ:RNOW), Urchin provides its software on a hosted basis. That is, Urchin hosts the software on its servers, and customers access it through a browser. Thus, there is little setup, and updates are always automatic.

Early this year, Urchin launched its latest product. A key feature is the measurement of the lifetime value of an online customer. What it means is that companies that advertise on the Web can get a much more accurate measure of the return on investment (ROI) of their campaigns by observing high-level tendencies in website traffic (and, hopefully, discerning meaningful trends in consumer behavior or sentiment via this information).

This Web analytics is critical to Google, since the company generates much of its revenues from advertisers. If these advertisers can see tangible ROI, they are likely to spend more. Thus, it is likely that the Urchin features will be a part of the services for Google advertisers.

In fact, this is not the only deal in the Web analytics space. Yesterday, NetIQ (NASDAQ:NTIQ) announced that it sold its Web analytics division, WebTrends, for $94 million to Francisco Partners Management, a private equity firm that specializes in tech deals. With capital coming into this industry, it should mean better technologies and, consequently, more effective spending for those companies that advertise on the Web. While companies certainly see the benefits of Web advertising, they obviously want to get more bang for their buck.

Interestingly enough, a key advantage to Web analytics is independence, since objectivity and measuring an ad's effectiveness is the defining feature of this type of product. But, if such a product is owned by a company like Google, is this jeopardized? As it goes, Google's revenue is strongly tied to advertising, potentially creating a conflict as Google could misrepresent metrics associated with ad profitability so it can retain customers.

This is not necessarily paranoid thinking. After all, Microsoft (NASDAQ:MSFT) was alleged to have focused its Windows operating system to work better with its own products.

Well, despite the potential conflicts, the mega-search companies are in the Web analytics game. Yahoo! (NASDAQ:YHOO), for example, has Web analytics, and Microsoft recently launched its paid search service, adCenter, which also has Web analytics.

In the war for search, it is a fierce battle of feature-for-feature. And, this is good news for the Web analytics providers, as the deals should logically push values higher.

Fool contributor Tom Taulli does not own shares mentioned in this article.