Google Inc's efforts to persuade businesses to buy its email services suffered a setback this week after a highly publicized outage shut down accounts of millions of corporate customers for almost two hours.

The outage -- one of several in the past year -- underscored fears that Google's email, still lagging Yahoo Inc's in market share -- is not stable or reliable enough for corporate users.

The Internet giant apologized for the problem, pledged its best to prevent a recurrence of the problem, explained what went wrong and added three days to year-long subscriptions to its corporate Google Apps email service, which costs $50 per-user-per-year.

The giveback in credit in any email situation is always bitter money. Everybody would always rather have uptime than a giveback, said analyst Matt Cain of market research firm Gartner Inc.

That may not be enough to compensate for the bad publicity and ill will created by the incident, which was widely covered in the press. It could hamper efforts to persuade businesses to abandon technology from Microsoft Corp and International Business Machines Corp that handle hundreds of millions of email accounts.

This is bad news for Google. Email is a critical tool and outages are unacceptable, said Nucleus Research analyst Rebecca Wettemann.

Google hopes to eventually derive a steady revenue stream from corporate users, as growth in its leading online advertising business begins to show signs of slowing.

Known for Internet search ads that generate billions of dollars in annual revenue, it has spent more than 2-1/2 years marketing Google Apps, which includes email as well as calendars, a word processor and other Web-based software.

LIMITED SUCCESS

The effort has so far met with limited success.

Google spokesman Andrew Kovacs said the number of paid subscriptions numbers in the hundreds of thousands. The vast majority of Gmail's 15 million business users use a free version of the service.

Gartner's Cain said Google has only started to gain traction in recent months as it has added key features that businesses demanded. They included support for Research in Motion's BlackBerry devices and letting users delegate use of their email and calendar to another person.

One of the biggest stumbling blocks had been that Google used beta to describe the service until July. Cain said that raised concerns that the product was not ready for prime time.

Analysts said that Google has been slow to persuade businesses to pay for the service because it is not easy to convince customers they are getting a premium service.

Once somebody has gotten into the habit of getting something for free, they expect more for free, said Global Equities Research analyst Trip Chowdhry.

Google is having a tough time changing people's habits.

Tuesday's outage reinforced those perceptions because paying customers suffered the same as free users. Google Apps promises that it will provide them more reliable service, giving special protection to their data.

In this case we weren't able to do that, and they were impacted, Kovacs said.

(Reporting by Jim Finkle; Editing by Edwin Chan and Richard Chang)

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