Microsoft turns to telephony

The software maker last year set out its ambition to become a serious player in the telephony market, announcing plans to turn its corporate instant-messaging software into a program that can also manage telephone functions.

Jeff Raikes, the veteran Microsoft executive who helped establish Office as one of the company's most profitable products, recently stepped in to take over leadership of the telephony business. Raikes says his unit's investment in telephony research and development is second only to the R&D investment in Office itself.

Raikes on Wednesday will lay out Microsoft's telephony plan at VoiceCon, an industry conference in Orlando, Fla. He spoke to CNET News.com by phone ahead of his speech.

Q: What are some of the key points you are making in your speech?
Raikes: We'll point out that within the next three years that we believe there will be as many as 100 million people or more enabled for making voice calls from Outlook, SharePoint and other Microsoft system applications. And if you think about where we are today, that's probably twice the number of people that have voice over IP (Internet Protocol) lines. In addition, we predict a voice over IP network will cost probably half of what it does today. We'll be announcing the betas for Office Communications Server and Office Communicator, which is the client-side application.

Jeff, you talked about this vision some months ago. How much tangible progress have you made? Where are things right at this moment?
Raikes: We had a technology-adoption program summit in December, and there were 250 representatives from nearly 100 enterprises that participated in that weeklong event. Their IT departments served more than 7 million people doing information work. We already have these customers working with the early adoption of our technology. The betas are coming out now. So we're well along on our road map that leads to that point that I'll make, which is that within three years there will be 100 million or more people able to make phone calls from Outlook, SharePoint, and other Microsoft Office System applications.

Similarly, you know, we've heard others in the industry talk about having specifications for interoperability. We're actually publishing them. And that will be available and we'll talk about that (at VoiceCon).

I mean, just think about the pace of innovation in the last 20 years. You had digital technology in telephony in the 1984 time frame. How much has your desktop phone changed in the last 10, 12, 15 years? Very little. Yet how much has your experience changed for mobile computing, for e-mail, for instant messaging? The real challenge that's held back this part of the industry is that they don't have a broadly accepted software platform that enables the pace of innovation. So what I'll be emphasizing next week is, we, in conjunction with our partners, are putting in place the software platform that will enable this pace of innovation.

Even with all those changes, given that companies have a lot of existing equipment and expertise in traditional phone systems, won't this change really still take awhile?
Raikes: That's the beauty of the approach that we take, is that we make it possible for customers to actually use these capabilities in conjunction with their existing PBX (private branch exchange) system. It's not a rip-and-replace approach. So that means customers are actually able to more quickly get to the value without having to have the expensive rip-and-replace approach that some of the other industry participants would recommend.

What does it look like when you use the PBX phone?
Raikes: A good example is SimulRing, the idea that a phone call is coming in and you can either pick it up on your desktop phone, or maybe you're actually not at your desktop, so you also get an instant-messaging alert saying that you have a phone call coming in, and do you want to take it on a voice over IP call using Office Communications Server, or do you want to forward it to your mobile phone.

You mentioned that this is one of the biggest bets that Microsoft is making in the Office arena. What does that mean in terms of dollars for you guys?
Raikes: Well, basically, one way to quantify it is that the amount of R&D investment that we're putting in with unified communications and voice over IP is the largest R&D investment beyond what we do in the core of Office.

And is that why you've chosen now to run the business yourself?
Raikes: I've chosen to take on this role for the combination of, frankly, it's the biggest opportunity for growth that we have, and we think it's the biggest opportunity for our customers. So, yes, that is correct.

One of the things that Steve Ballmer mentioned when he spoke with financial analysts recently is this notion of taking Exchange and SharePoint and Live Communications Server, and running them as a hosted service. Is the first version of Office Communications Server that comes out going to be available both as a traditional server and as a hosted service?
Raikes: Yes. We're big believers in giving customers choice, and many customers are going to want to run these technologies on premise, as they do today, and many customers are going to be very interested in having Microsoft or another of our partners be a provider of a hosted service for them. And so it's absolutely our intention to deliver both. Now the actual timing will depend upon specifics that aren't really worth going into right now, but the idea is to basically give customers the choice.

How do you see this stacking up with what Cisco is doing? Because, you know, obviously right now in terms of IP communications, they're the leader. So how is this different from what they're doing?
Raikes: Well, with all due respect, it isn't just about Cisco. It's about how the industry gets transformed by having a broadly accepted platform. It's a little bit like in 1990 when enterprise computing had vertically integrated stacks from HP, IBM, Digital Equipment Corporation. The point is that enterprise computing got transformed by those vertically integrated stacks going horizontal, by having competition on the horizontal layers.

You'll see the same type of transformation in the next three to five years in the voice communications, unified communications area. What you'll see is the industry as a whole move more towards a broadly accepted software platform as opposed to proprietary stacks from individual vendors. That's why (telecommunications equipment maker) Nortel (Networks) has become such an important partner, because they recognize that transformation is under way and so they've decided to team up with us, and we expect that other partners will team up as well.

How much of the initial challenge for you guys is going to be a sales challenge? A lot of companies have not only just different infrastructure but different people responsible for telephony and IT infrastructure. How much of this is a sales challenge of, it's not the IT people that buy the phone system?
Raikes: It's one of those things that will characterize the transformation over the next three to five years. I mean, we're already seeing IT organizations begin to restructure, where they have a merger of the people who do telephony and networking. So we're already seeing this transformation today. We're already seeing how customers are restructuring their IT decision making, in some cases their IT departments. They're looking at the opportunity to bring together voice with the office productivity infrastructure. You end up with a lot more value, a lot more capability, at half or less of the cost.

Where does mobile come into this? Is this application already available on mobile handsets, or is that coming in the future?
Raikes: Yes, we already today offer Communicator Mobile on Windows Mobile devices. Again, in the same way we're taking the next step with voice in this release, that also includes what we're doing with Communicator Mobile. So you won't have to be tied to a specific vendor like Nokia. You can have a Windows Mobile device from many vendors, and be able to take advantage of these capabilities. That I think is, again, a significant difference from today's industry structure, where you tend to have the proprietary stacks of the existing players.

In this next generation you'll be able to initiate voice calls, and over time of course mobile devices will improve, where they will have a much better, more-resilient Wi-Fi, with the ability to have coexistence of the data and the voice channels. So we expect mobile devices to be extremely important, and this will be one of the key points I make about our investment in unified communications next week--the extensive investment we're making in mobility and mobile devices.

We've heard from other companies, including one that I think you guys may well be talking to, this idea that you start a voice call and you get data back. How important is that, and is it true that you guys have had talks with Tellme?
Raikes: So the key point I would make is that we think very broadly about the impact that voice--voice over IP, voice recognition--is going to play in the infrastructure, and we have a lot of investments. We of course don't speculate or comment on discussions with other companies. We have lots of discussions with partners all the time.

I'm wondering if it's come up with you guys in talking to customers: people expect (voice systems) to be ironclad. They want to pick up the phone and they want to get a dial tone every time. They don't want their call to be cut off because their computer is rebooting.
Raikes: You're absolutely right about the importance of reliability and quality. I would say that those are two things that really define being in the game on voice communications. The second thing is, our approach is really ideal for a couple of reasons in this regard. One is we have the ability to sit alongside the existing infrastructure, and that makes it possible for people to begin to take advantage of these capabilities, and they have all of the security blanket, so to speak, of the existing infrastructure. It also means that they can take advantage of what they have.

Which type of gear did you use for this call?
Raikes: For this one I used the PBX, the existing PBX phone.

Do you make a lot of VoIP calls these days, or is it still mostly PBX when you're using the phone?
Raikes: To date, for me mostly PBX, for (unified messaging vice president) Gurdeep Singh Pall, a lot more--at least more than me--in terms of the voice over IP calls.