Microsoft dials up phone ambitions

At an event here Tuesday morning, Chairman Bill Gates and Business Division President Jeff Raikes formally launched several products that are key to Microsoft's strategy of offering "unified communications" for businesses--that is, software for bringing together e-mail, instant messaging, voice mail and telephony.

The event took place at the Bill Graham Civic Auditorium--a venue better known for rock concerts than tech launches. It kicked off with fog machines pumping and a rock musician playing an electric guitar signed by Gates.

"The era of dialing blind, the era of playing phone tag, the era of voice-mail jam...that era is ending," Raikes said at the event. He noted phone numbers themselves are the product of the technology limitations of the era in which they were developed.

"I don't want to get in touch with your number," Raikes said. "I want to get in touch with you."

The most significant of the new products, Office Communications Server 2007, is a considerable expansion of its predecessor, Live Communications Server, which was used mainly for corporate instant messaging. The new version can handle that task, but is also capable of managing phone calls for businesses using either traditional or Internet-based phone systems. In addition, it can plug into existing Microsoft software, such as Office and Exchange.

In addition to the core server software, Microsoft is introducing a companion desktop product, Office Communicator, and a new version of its Live Meeting videoconferencing software. It is also making available its RoundTable videoconferencing device with a 360-degree camera and recording abilities.

Gates highlighted the cost and productivity savings that can come by handling calls over a computer network.

"By moving phone calls onto the Internet using the powerful industry-standard servers, we have a very different way of doing things," Gates said at the event.

A Forrester Research study commissioned by the company found that typical customers could save $5 for every $1 spent on Microsoft's software, provided they adopt all the company's technology and switches from traditional to Internet-based calling.

The company has identified unified communications as its most significant opportunity to increase revenue in its business software unit, a unit that has been fueled largely by the success of Office.

"Frankly, it's the biggest opportunity for growth that we have," Raikes said in a March interview.

For its part, Microsoft is using a familiar approach, touting partners as key to its eventual success. At Tuesday's event, the company touted 15 new phones and devices that work with its software; new services from Hewlett-Packard and Dell; and support from software makers, such as SAP, that are including Microsoft's "click to communicate" technology in their products. Nortel Networks, one of Microsoft's closest partners in this area, is announcing several new products that build on top of Microsoft's server software.

Raikes has said the telephony market now is much like the server market was in the 1990s. As it did in the server market and the PC market before that, Microsoft is hoping to create the core software, while counting on a legion of other companies to build hardware, add-ons and additional software needed to create the full package for businesses.

"When we think about unified communications, we think about how you can break down all the silos around e-mail, IM conferencing and voice," Kim Akers, general manager of Microsoft's unified communications effort, said ahead of Tuesday's event. "Within whatever application you are working on, you can 'click to communicate.'"

Microsoft first laid out its vision for the market at an event here in June 2006.

Microsoft is far from alone in this quest. Cisco Systems, in particular, is also making a big push in many of the same areas. It offers a number of products in the unified communications arena and in March announced it would buy WebEx, a key rival to Live Meeting.

Whereas Microsoft sees software as the foundation of its unified communications strategy, Cisco sees the network as the key to making unified communications work. Henry Dewing, a principal analyst with Forrester, said that there is room for both companies to do well in this market. Cisco is likely to handle more of the call-control functions, he said, while Microsoft will be used as the application on the desktop, providing presence and video applications.

"It's going to be a messy market for next 5 to 10 years," said Dewing, who did not participate in the Forrester study commissioned by Microsoft. "Microsoft will likely dominate the desktop, and Cisco has already proven that it's strong on the infrastructure side, selling roughly half of the VoIP-enabled telephony lines. So it will be hard to knock them off."

Instead, Dewing sees the companies working together--not because they want to, but because they have to.

"Even with Microsoft's Office Communications Server 2007, I don't think Microsoft is ready to deliver the entire solution," he said. "And I don't think Cisco can deliver a complete solution on its own right now either."

Video: Microsoft moves to business telephony
Bill Gates takes the stage in San Francisco to announce Microsoft's new line of software aimed at unifying voice mail, e-mail and business meeting technology.

Because customers will likely mix and match products to build a complete solution, the companies will have to work closely to ensure their products work well together.

In August, Microsoft CEO Steve Ballmer and Cisco CEO John Chambers staged an event in New York City where they declared their willingness to work together in areas--such as unified communications--where they will also compete.

"Some people like to see things in black or white--we're either partners or competitors," Ballmer said during the event in August. "But the relationship is much more complex. It's what our customers want. And we have to work together in a sophisticated fashion to give customers what they want."

Ultimately, most customers will have a mixture of Cisco and Microsoft products as part of their communications solution, said Rick McConnell, general manager of the company's unified-communications unit.

"The vast majority of customers will not choose an all-Microsoft or an all-Cisco solution," he said. "It's just not very practical. We don't offer Office-like applications, and they don't have networking products. So the question becomes: where do you draw the line between using products (from) Cisco or similar offerings from Microsoft? And that's where we will compete."