The imperfection of P&G (Postini & Google)

I am sure most of the readers know that Google acquired Postini for $625 million. The blogosphere is full of comments on how aggressive and passionate Scott's team has been and what Dave Giroud mentioned in the press.

It is encouraging to see Google invest a PE multiple of 10 to invest in complimentary security product. This bolsters the security SaaS movement. However, we need to understand some crucial mismatches. Google Apps customer base is largely the 1-2 user segment while Postini's market is in the 100+ user segment.

Google Enterprise team have experienced the benefits of partnering with Postini. However, Postini continues with its channel recruitment and enablement strategy which is very different from Google Apps partnership strategy. Currently, Postini has a healthy team of 1600 resellers serving 35000 businesses and over 10 million customers. It will be interesting to read Google Enterprise communique to Postini's channel once the acquisition is completed (which is expected to happen by Sept, 2007).

I would also like to highlight the difference in business model. Google's enjoys a leadership position in the ads market which is something they would like to take into the corporate space. Its a difficult sale however Google being a innovator, I am sure the clever techies will come up with an non-intrusive way. However, thats not the point. The difference in the business model is what I want to highlight. Google-Postini and Postini-reseller network have different business models which are not sustainable in the long run. And in fact, Google's track record in this space isn't encouraging. Yes, I am thinking of Feedrunner, GreenBorder etc.

Finally, lets look at the big opportunity ahead. Postini has an interesting portfolio of products around security compliance. Though its not the biggest selling app yet for Postini, Google can scale it to provide an attractive and valuable portfolio of complaint communication services using Positini's policy enforced TLS amongst others. I think that there is a great possibility for Google to embed some of Postini's intellectual property into its product suite. This can justify the PE multiple that Google agreed to pay.