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Microsoft trading on new Exchange

The company hopes the server software will help it move into unified messaging, where voice mail, e-mail and fax come together.

Microsoft kicked off its big event in New York on Thursday, and most of the attention naturally falls on Windows Vista and Office 2007. After all, they are the software maker's two flagship products and generate the lion's share of company profit.

But the company is using the business launch of those two products to also tout a third software effort--Exchange 2007. Though the server software is less well-known among consumers, it has become a mainstay inside many corporations, powering e-mail systems and, increasingly, being tapped for a range of other communications tasks.

The code of the Exchange update is set to be finalized next month. With the release of the new program, Microsoft is hoping to move a step closer toward the notion of unified messaging, which gives people a single place to get voice messages, e-mail and faxes.

At the event Thursday, CEO Steve Ballmer touted the time and cost savings from unified messaging as one way Microsoft's latest wave of software can help companies get more out of their employees. Ballmer delivered the main speech at the Nasdaq Stock Market as part of Microsoft's announcement of the business availability of Vista and the new Office, along with the formal launch of Exchange 2007.

The notion of unified messaging has been around for more than a decade, and many existing products aim to bridge the divide between voice and data messages. "There's been a lot of effort over the past 15 years," industry analyst Sara Radicati said. But, while there have been some good products, Radicati said that they have been costly and difficult to implement. "They've all fallen a little bit short," she said.

In entering the unified messaging race, Microsoft finds itself pitted against not only traditional computing rivals, but also against a host of telephony providers that don't want Redmond eating their lunch.

As telephony and computer messaging merge, many businesses are having to rethink the way they structure their communications and IT functions. Many companies have separate departments in charge of e-mail and phone, which in plenty of cases are handled outside the IT department entirely.

Warmer welcome
Conventional wisdom suggests that Microsoft stands its best chance with companies that have put the IT folks in charge. But Exchange unit head Dave Thompson said that it hasn't necessarily been the case that computing people are more open to it when he has met with businesses.

"Oftentimes, the telephony folks were even more aggressive about using the messaging infrastructure to manage voice messages," Thompson said in an interview.

The new Exchange isn't just about trying to replace the traditional telephone, though. In fact, one of its key new features is the ability for workers to use the phone to dial-in and get their e-mail and calendar information. Workers can say what they are looking for and Microsoft's voice recognition interprets the commands. Then, text-to-speech software reads the e-mail messages out to them over the phone.

"It's really cool," AMR Research analyst Jim Murphy said of the capability, but added: "It's hard to tell how and when people will adopt those capabilities."

One of Microsoft's strengths, Murphy said, is that the company is willing to add new technology without having to know fully how it will get used. "They are great at that."

Radicati, who is CEO of market research firm The Radicati Group, agreed that voice access to e-mail might be a niche feature, most likely to appeal to professionals on the go. "Clearly, there is a category of people that need that desperately today," she said. However, even the average office worker could benefit from occasional access to calendar data and e-mail away from the office. "It will fairly quickly start to trickle down to everyone," she added.

Other services
Microsoft is trying to put other new services in Exchange, including the ability to get bundled antivirus and antispam protection--and it is hoping the new features add up to more money. While the cost of licensing basic Exchange is similar to that of the prior version, the company is charging a higher per-user fee to businesses that want the antivirus abilities and the voice recognition options.

Companies can still save money, in comparison with buying those things separately, Thompson said. Planning-system specialist Franklin Covey, an early user of Exchange 2007, saved $100,000 compared with what it would have cost the company to have separate e-mail and messaging services.

Microsoft is also trying to gain ground on IBM's Lotus line, which is Exchange's traditional rival. At a 2005 partner conference, Ballmer singled out the Lotus Notes customer base as "ripe to be plucked." Since then, Microsoft has aimed several efforts at trying to sway Lotus customers to Exchange. For example, it has developed tools to help businesses move both data and applications over to Microsoft products. On the other side, IBM has launched programs of its own to lure Microsoft customers over to it.

Thompson said the Lotus-switch effort has "been going very well," saying that those programs alone helped 500 customers move to Exchange in Microsoft's last fiscal year. The company hopes to woo an even greater number this year, he noted.

Radicati Group predicts that Exchange will continue to increase its share of the global messaging software market. Today, about 30 percent of businesses use Exchange, compared with 20 percent for IBM products. However, the two rivals account for most of the revenue for messaging software, with Microsoft taking in fully half the $2.3 billion in worldwide revenue and IBM garnering about 43 percent of the dollars spent on such software, according to Radicati figures.

Projections from Radicati suggest the market will grow to about $3.3 billion by 2009. According to those predictions, Microsoft will account for two-thirds of that, while IBM will see its revenue decline even as the market grows.