Microsoft is all business with IM

Microsoft is set to begin its most aggressive effort yet to sell instant-messaging services to corporations--and it's pulling out its old playbook to gain traction.

When the company on Tuesday launches Office System, its updated suite of business applications, customers will find hooks to instant messaging (IM) features that are built into e-mail, word processing, spreadsheet and presentation programs.

The idea is to let employees see at a glance from any corporate document up-to-the-minute contact information about each other, a feature known as "presence" in IM parlance. For example, an Outlook e-mail message might note that the author is currently offline and available only at their cell phone number.

The catch: To take advantage of these features, customers need not only to upgrade to Office System. They'll need to buy new server software from Microsoft as well.

"Microsoft is doing with the integration of instant messaging and presence in Office what it did with the integration of Internet Explorer with Window 95 and 98," said David Gurle, executive vice president of Reuters Messaging and a former Microsoft executive. "It basically harmonized the development of applications on a common platform."

Microsoft's plans highlight a familiar script for the software giant, which has repeatedly used its market dominance as a launchpad for new products. By building IM functions into Office, Microsoft hopes to provide an incentive for customers to upgrade to the latest and greatest version of its business applications software. But it also hopes to put itself in the driver's seat when it comes to selling IM services to corporations.

IM software lets people exchange text messages in real time with other contacts who use the service. Once a chat tool only teenagers and early adopters used, IM has grown in popularity as services from America Online, Yahoo and Microsoft have multiplied onto millions of computer desktops. What is especially appealing to IM providers is that many of their users are chatting during work and using IM to communicate with contacts inside and outside their corporate firewalls.

Microsoft has earmarked IM as a crucial application since it launched MSN Messenger in 1999. While MSN has battled against rivals AOL and Yahoo ever since, its Windows division has taken an equal interest in IM.

In 2001, Microsoft launched Windows Messenger, an IM application that came bundled with its Windows XP operating system. While MSN Messenger continues to gain Web users outside the firewall, Windows Messenger became the foundation for Microsoft's loftier plans--its new business IM product that will launch Tuesday, known as Office Live Communications Server 2003 (LCS).

Now, Microsoft views IM as the spearhead of a broader strategy of running all real-time communications functions in a business. If this vision is realized, LCS will let users see a co-worker's presence status and then immediately send an IM or place a voice call to reach the contact.

"Instant messaging is really the tip of the iceberg here," said Michael Gartenberg, an analyst at Jupiter Research. "It's all about enabling presence in applications and the things you can do with that. It's a logical move on their part."

Office presence
Here's a glimpse at what LCS can currently do: Imagine that an employee receives an Excel spreadsheet a co-worker authored. With LCS, a SmartTag appears under the author's name that allows the employee to right-click on the link in order to check the author's online status. The author may be out to lunch, or perhaps, the author is online, whereupon the employee can then launch an IM window and send the author a message.

Eventually, corporations with LCS can use Office as a way to contact other employees--and possibly vendors and customers--be it through IM, phone or video.

"What Live Communications Server does in context is put presence and instant messaging as the glue that cuts across applications," said Ed Simnett, lead product manager for Microsoft's Live Communications Server division.

Microsoft will take a shot at selling LCS as an add-on to Office instead of shipping it as part of Office's software suite. The company will charge $733 for the server software and a $25 client license per person for large-scale buyers. LCS will not work unless the company is running Windows Server 2003 software in their back-end systems. For single copies, the company will charge $929 for the server and $34.95 per head.

Microsoft's foray into business IM comes as demand is growing within corporations for new real-time communications. But it has not reached critical mass, making it a necessary addition for most companies.

For some corporate information technology managers, IM has been more of a curse than a blessing. Since free IM services do not include security or manageability features, many IT departments have blocked these services. In industries that are tightly regulated such as finance and health care, IM conversations have become a liability, because IT departments cannot manage IM conversations like e-mail, where messages can be archived or restricted.

IM providers have taken advantage of this dilemma. AOL, Yahoo and Microsoft have begun selling corporate versions of their IM services that include compliance and security features they hope will appease IT managers' demands. Rather than having their services disconnected, these companies have instead stumbled on an opportunity to sell IM.

Microsoft is not the only enterprise software company to spot the trend. Its entry into the market follows on the heels of other entrenched giants such as IBM's Lotus division, considered the leader in corporate IM with its Sametime product. Sun Microsystems, an established player in powering corporate information systems, has integrated enterprise-class IM into its Java Enterprise System software suite.

The burden of dominance
Competitors have been following LCS' development closely. Some rivals have flagged Microsoft's decision to leverage its Office dominance as a way to launch and distribute LCS. But competitors for now say they are not concerned that LCS will do much to disrupt their own business IM efforts.

Microsoft is "trying to use its particular strength in Office to jump into a new product segment," said Steve Boom, senior vice president of Yahoo Enterprise Solutions, which sells a version of Yahoo Messenger to corporations. "It's definitely something we're paying close attention to."

While integration into Office appears powerful on paper, LCS' multiple tie-ins may be a limiting factor for Microsoft. Installing LCS will not be cheap, because companies must upgrade their back-end and front-end systems to Microsoft's 2003-class software to run LCS in the first place. Enterprise IM is a difficult incentive for companies to uproot their back-end server infrastructure.

"It's a big bet," Reuters' Gurle said. "It's all a function of how quickly (LCS) will get adopted in the market. Now, (Microsoft) has got to push it into corporations. I think the biggest challenge they face is that many (companies) have not upgraded into Windows 2003 yet."