July 9 (Bloomberg) -- Google Inc., owner of the most popular Internet search engine, agreed to buy closely held Postini Inc. for $625 million in cash, adding e-mail security services to its programs for small businesses.

Postini, based in San Carlos, California, runs data centers that process and protect customers' e-mails and instant messages. Its products have more than 11 million users at 35,000 firms, the companies said today in a statement.

The security features may attract more companies to Mountain View, California-based Google's Gmail e-mail service. Google will rival Microsoft Corp.'s Exchange and Outlook software by encouraging small businesses to adopt Gmail along with its online calendars, spreadsheets and instant messaging.

``This brings Gmail up to enterprise class,'' said Peter Firstbrook, a research director at Stamford, Connecticut-based Gartner Inc. ``They need to compete directly with what Microsoft is offering.''

Google shares rose $3.16 to an all-time closing high of $542.56 at 4 p.m. New York time in Nasdaq Stock Market trading. The stock has risen 18 percent this year. Microsoft, the world's biggest software company, fell 10 cents to $29.87.

E-Mail Security

Postini is one of the three largest e-mail security service companies, along with MessageLabs Ltd. and Microsoft, Firstbrook said.

Google, which controls more than half of the U.S. Internet search market, is entering new businesses such as Web-based applications and mobile software as sales growth slows. The company has made more than 10 acquisitions this year.

The Postini purchase, expected to close by the end of September, is Google's second-biggest this year. The company agreed to buy DoubleClick Inc. in April for $3.1 billion and completed a $1.65 billion purchase of YouTube Inc. in November.

Google stepped up competition with Microsoft in March 2006 when it bought Upstartle, maker of the Writely Internet word- processing software. To bolster its business services, Google bought a video-conferencing unit from Marratech AB in April and acquired security-software maker GreenBorder Technologies Inc. in May, both for undisclosed sums.

`Into the Enterprise'

``This one is the first one that really gets them into the enterprise,'' said Brenon Daly, an analyst at market researcher 451 Group in San Francisco. ``It's a very important transformation for what essentially is a consumer media company.''

Postini's investors include Bessemer Venture Partners, Mobius Venture Capital, Summit Partners and Sun Microsystems Inc.

Google spokesman Aaron Zamost declined to say whether Google would assume debt from Postini. He also declined to list financial or legal advisers for the acquisition.

Microsoft, based in Redmond, Washington, is trying to take advertising sales from Google with its own search engine and acquisitions. The company is buying AQuantive Inc. for about $6 billion to narrow Google's lead in the Internet advertising market.

Symantec Acquisition

Google's purchase also pits the company against security software makers Symantec Corp. and McAfee Inc., Jefferies & Co. analyst Youssef Squali wrote in a report today. Symantec bought Brightmail Inc. in 2004, adding technology to block junk e-mail.

Before the Google purchase, Postini may have been nearing an initial public offering, 451 Group's Daly said. In May, Postini named Murray Demo chief financial officer. He spent 10 years with Adobe Systems Inc., including six years as CFO.

``You don't hire a seasoned public market CFO who's overseeing a company with $2.5 billion in revenue to help sell a startup,'' Daly said. He estimates that Postini was headed for sales of $110 million this year.

To contact the reporters on this story: Crayton Harrison in Dallas at tharrison5@bloomberg.net; Ari Levy in San Francisco at alevy5@bloomberg.net

Last Updated: July 9, 2007 16:18 EDT