Microsoft to buy Groove Networks

Microsoft on Thursday said it will acquire Groove Networks and make Groove's founder, Ray Ozzie, a chief technical officer at the software giant.

Microsoft said it will incorporate Groove's "virtual office" collaboration software into its Office line of productivity applications. Ozzie, the inventor of Lotus Notes and a collaboration guru, will report to Bill Gates, Microsoft's chairman and chief software architect.

Ozzie will be one of three chief technology officers for Microsoft. He'll be in charge of information worker software and collaboration tools, and he'll work both at Microsoft's Redmond, Wash., headquarters and at Groove's current home base in Beverly, Mass., which is north of Boston.

Gates lauded the advances Groove has accomplished in collaboration for Microsoft Office and said that Ozzie's expertise in other areas, notably security, authentication and peer-to-peer computing, will be brought to bear in other Microsoft products, including the forthcoming Longhorn edition of Windows.

"I thought about 'Could we ever hire Ray and his team?' for a long, long time. So it's a big, big day for me that this is finally taking place," Gates said during a conference call Thursday. "The Groove product really has some fantastic and very unique features."

Microsoft was an investor in Groove, which has closely tied its collaboration software to Windows and other Microsoft products.

Microsoft said the Groove group will become part of its Information Worker division. The acquisition is expected to close in the second quarter. Terms of the deal were not disclosed.

Groove was founded in 1997 to create productivity software for groups of information workers. The organization, which now has nearly 200 employees, will continue to work out of its existing location in Massachusetts.

"To some extent, Microsoft has had a shotgun approach to collaboration. It's not clear to me which of Microsoft's approaches...will be a winner."

-- Paul DeGroot
Analyst, Directions on Microsoft

Microsoft intends to keep the Groove facility and may expand its operations in the area, said Jeff Raikes, group vice president of Microsoft's Information Worker group. Ozzie, Raikes and other Microsoft executives announced the acquisition to Groove employees at their office Thursday morning. No layoffs at Groove are planned.

Called Groove Virtual Office, the company's software lets people from different companies collaborate by working over secure Internet connections. The product uses a peer-to-peer design in which individual PCs can communicate directly with one another to share documents or communicate via instant messaging.

The software has been sold as an add-on to Microsoft's SharePoint Web portal software because it lets mobile workers get updates on ongoing projects without having to use a virtual private network.

Groove has customers in government agencies and large corporations looking for better information-sharing tools. In the past several months, the company has shifted its sales strategy from making large,

companywide deals to selling smaller projects to smaller organizations and to individual departments within big companies, according to a representative.

In an interview with CNET News.com one year ago, Ozzie said the company's intention from the beginning was to remain independent and become a public company.

But on Thursday, Ozzie said joining Microsoft will help Groove realize its vision of giving dispersed teams of workers better collaboration tools.

"(I) have an opportunity to contribute some of what I've learned--both the things that have worked and the mistakes I've made--to Microsoft's corporate-wide offerings, both information worker and related supporting infrastructure," Ozzie said.

Raikes said that the timing for the transaction was driven by Microsoft's growing interest in collaboration and by requests from several customers who suggested that Microsoft tighten its ties with Groove.

"It was the combination of that (customer) feedback and the opportunity we see in having more powerful collaboration offerings going forward--that was the tipping point," Raikes said.

Microsoft's two other chief technical officers are David Vaskevitch, who focuses on business applications, and Craig Mundie, who deals with emerging technologies, such as embedded computing, and government policies.

A "big-idea thinker"
The acquisition of Groove is hardly a surprise, given the close ties between the companies, said Nate Root, an analyst at Forrester Research. Keeping Ozzie at Microsoft is a smart move, given that Ozzie's been a fixture of the collaboration market for many years, he added.

"When Lotus Notes was invented, it was an out-of-the-blue big idea, and Groove was the same...Ray is a big-idea thinker," Root said. "Microsoft has recognized the value of it and is finally stepping up and buying them."

From a product point of view, the Groove software fills a hole in Microsoft's existing office suite. When customers have needed software for workers who were only occasionally connected to company networks but needed to update documents, Microsoft has had to point them to Groove, Root said.

However, it will be challenging, Root said, to bake Groove's collaboration features into Office 12 and Longhorn, the new edition of Windows, which are both due out next year.

"When you're dealing with software products that have millions of lines of code and are well along their design and development paths, it's not trivial to buy a major new feature and weave it in at the proverbial last minute," he said. "Microsoft should have bought them a year ago."

Paul DeGroot, an analyst at Directions on Microsoft, said buying Groove fits Microsoft's pattern of buying companies that have built their

applications on top of Microsoft software. The move also advances Redmond's strategy of adding features to its Office product line in an effort to get customers to upgrade, he said.

DeGroot noted, though, that Microsoft already has a number of collaboration-related products, such as Live Meeting conferencing software.

"To some extent, Microsoft has had a shotgun approach to collaboration," DeGroot said. "It's not clear to me which of Microsoft's approaches to collaboration will be a winner."

"The Groove product really has some fantastic and very unique features."

--Bill Gates
Chairman and chief
software architect, Microsoft

Microsoft executives said that the addition of Groove gives the company three approaches to collaboration: a server-based method for sharing Office documents through SharePoint; real-time collaboration with Live Meeting; and now Groove Virtual Office for people who are geographically dispersed and need to work with people inside and outside their organization.

Microsoft intends to continue offering the Groove application on a hosted basis, said Steven Sinovsky, senior vice president at Microsoft's Information Worker division.

Gates said Microsoft will create a long-term "road map" for integrating Groove's software, but some capabilities, such as authentication and peer-to-peer, will surface in the shorter term in Longhorn. Existing work at Microsoft will be combined with what Groove's employees are doing, he said.

"Clearly, a big thing of Longhorn is going to be its peer-to-peer capability, and having Groove help us pull that together is going to help us do an even better job on that," he said.

Ozzie, who battled Microsoft for years when he was at IBM's Lotus division, will make a significant adjustment as part of the larger Microsoft organization, Forrester's Root said.

"It's ironic that the creator of Lotus Notes will be reporting to Bill Gates," Root said. "The whole point of Groove is to let people work together when they're not in the same location--we'll see if Ray can eat his own dog food."