Microsoft as Telecom Vendor: Enter the 800-Pound Gorilla

Few enterprise telecom professionals today would name Microsoft as a significant vendor in the telecom field. As a provider of information technology tools, Microsoft is obviously pervasive. As a vendor of communications solutions, it doesn’t yet loom very large. But that is about to change. With the transition to IP telephony in the enterprise well under way, Microsoft is positioning itself to utilize its software development prowess and expertise in IP-based communications. Its vision of "unified communications" and presence-based, real-time collaboration is widely shared among PBX companies and other players. But Microsoft is counting on utilizing its networked Office products to transform this vision into a dominant force in the telecom market. "Right now, they’re dancing around it," says Yankee Group vice-president of enterprise infrastructure Zeus Kerravala. "Microsoft is not seen today as a primary telecom vendor in the enterprise market, but it will be." Product Integration Many if not most traditional telecom vendors are currently building into their products integration with key pieces in the multi-product Microsoft communications solution—in particular, with Microsoft Live Communications Server 2005 and Microsoft Office Communicator 2005. In the future, all kinds of communication, including instant messaging, Web, audio and video conferencing, and plain ordinary telephony will be controlled from a Microsoft Office user interface, Kerravala predicts. Wainhouse Research, a Boston-based analyst firm specializing in visual collaboration and rich media, recently published a report entitled An Analysis of Microsoft’s Presence-Enabled Real-Time Communications Strategy: What Every Organization Should Know about the 800-Pound Gorilla’s Voice, Video and Web Collaboration Solutions and Partner Ecosystem. (www.wainhouse.com) The report is a comprehensive analysis of what its author, Wainhouse senior analyst and partner Brent Kelly, calls Microsoft’s "battle plans" for the unified communications market. It includes detailed descriptions of the products in Microsoft’s real-time collaboration suite, analysis of how they fit together and how they integrate with partners’ products and services and an evaluation of Microsoft’s strengths and weaknesses. "Wainhouse Research believes that Microsoft is in an excellent position to own a large portion of the enterprise desktop unified communications marketplace," Kelly writes in the report. But Microsoft’s strategy is by no means a slam dunk, as even Kelly acknowledges. It hinges on the proposition that Instant Messaging (IM), Web conferencing and presence awareness—automated exchange over the network of information about where employees are, how they can be reached and whether they’re on the phone or off—will become mainstream components in enterprise strategies for improving the efficiency and productivity of their workers. They are not today, but as Kelly notes in the Wainhouse report, Microsoft has the resources to be a market maker. The absence of voice—other than point-to-point IP voice and video—from Microsoft’s supposedly unified communications solution is another potential weakness in the strategy, though as Kelly and Kerravala both note, PBX vendors are lining up to integrate their products with the Microsoft software. And there is nothing to say that Microsoft won’t enter the PBX market itself at some point. The Products At the heart of Microsoft’s strategy is a suite of tightly integrated products:Microsoft Office Live Communications Server (LCS) 2005, a server software platform for implementing enterprise-wide presence awareness, and secure IM and Web conferencing systems. It uses industry standard SIP (Session Initiation Protocol) and SIMPLE (SIP IM and Presence Leveraging Extensions). LCS 2005, which replaced LCS 2003, was unveiled last May and began shipping late in 2004. It was designed as a premises-based platform, but can also be used—and is being used—as a platform for service providers. It can also be linked to other organizations’ LCS servers or other systems through gateways to provide what Microsoft calls "federation"—the ability to securely IM with a supplier’s or customer’s staff and see their presence.Microsoft Communicator 2005, a presence-enabled communications client, the preferred client for LCS 2005. It looks and acts something like the client for MSN Messenger, Microsoft’s consumer IM service, but allows users to activate not only IM but conferencing sessions and other kinds of communication. It can also be integrated with an enterprise telephone system. It shows IM-style presence information about individuals based on manual settings and rules they establish for automatically determining presence—for example, "If I don’t use the keyboard for 10 minutes, change my presence to Away." Also, through integration with an Exchange server, it extracts Outlook calendar information, automatically changes presence status based on entries in a user’s calendar and shows the calendar text when another user passes their mouse over that user’s name in a contact list. Office 2003Microsoft Office 2003, the latest version of the Office productivity suite, which according to one estimate, is on over 400 million enterprise PC desktops. Word, Outlook, PowerPoint and other modules in the suite now have LCS presence capabilities. If you click on the presence icon for a colleague in Outlook, for example, it will show you the person’s presence status. Microsoft Office Live Meeting, a hosted Web conferencing platform acquired with PlaceWare, which Microsoft purchased in 2003. It allows moderators to set up a Web conference with standard features such as application and document sharing and whiteboarding. Moderators can also now control the audio portion of the conference if the audio conferencing service or system is interfaced with the Live Meeting Server. Live Meeting supports streamed audio and video over the Internet. It’s also presence-enabled and integrated with other Office components, including productivity applications and Communicator. Microsoft SharePoint, a set of tools and services for building and managing collaborative websites and making them available within the organization or outside to users logging in over the Internet with a browser. SharePoint includes document management, sharing and searching functions. It is also LCS presence-enabled so that shared workspace members’ presence is shown within the workspace to facilitate ad hoc communications. Partnering Beyond the product suite, Microsoft is working hard to forge relationships with partners that can provide technologies missing from its own portfolio, integration with other products (including PBXs) or distribution and co-marketing opportunities. Microsoft’s ongoing relationship with Bell Canada is an example of the latter—though Bell’s joint offerings with Microsoft so far take advantage of very few of the features and functions detailed above. Bell has for several years provided online services based on the Office suite of products, mainly to its small and medium-size business (SMB) customers. They include application server provider offerings of the Office productivity applications and Exchange hosting, which now includes a mobile option that allows workers carrying RIM (Research In Motion) or other handheld devices to update and exchange calendar and e-mail information while they’re out of the office. The most recent offering to come out of the Bell-Microsoft alliance is an enhanced Web/audio conferencing service that integrates Microsoft Live Meeting servers with Bell’s conventional audio conferencing infrastructure. The service is the first in Canada to let users control the audio portion of a conference from the Live Meeting interface. Moderators can add participants by clicking on their names and dialing out to them. In the past, participants would have to dial into the Bell conference bridge as well as log on to the Web portion of the conference using their browser. Moderators can mute or expel unruly participants using the Live Meeting interface. They would have to enter coded commands on the telephone keypad to perform these actions in past versions of Bell’s service. They can also see at a glance who is logged on to the audio portion of a conference—an important security feature. "We’re allowing the end user or moderator to use one service, one integrated meeting tool, as opposed to piecing together two forms of communication," says Howard Morton, vice-president of ventures and alliances at Bell Canada. "It’s improving ease of use and that in turn will increase adoption of Web conferencing." The Bell-Microsoft alliance also maintains an "innovation centre" where the two companies are researching other services that will let both SMBs and enterprises take advantage of the larger Microsoft vision of presence-based, real-time collaboration. "Definitely presence management is one of the feature sets we’re evaluating today," Morton says. Sharing the VisionBut how many customers are actually in tune with the vision that Microsoft and its partners like Bell are espousing? "It’s very hard to quantify," says Yankee Group’s Kerravala. He, like others, makes the case that IM and presence management will be important for reducing "human latency"—decision making delays caused by one employee’s inability to quickly track down another employee. Some business processes are more prone to human latency than others. One prime example is settling insurance claims, Wainhouse’s Kelly says. Agents and call centre attendants often need to escalate claims to adjusters, who may then need to consult others to make a decision. "The average time to settle an insurance claim in the industry at large is five to seven days," Kelly says. "In one company we heard about that implemented technology, it’s now about two hours." There are few such cut and dried cases, though, and it’s not clear when mainstream enterprise management will buy into the proposition. Securing IMKelly argues that LCS-based IM and presence will enter the organization in other ways. Half of the U.S. enterprise users Wainhouse surveyed in one study said they were already using IM for business, mainly unsecured consumer services from MSN, Yahoo, and AOL. He points out that new corporate governance regulations, such as Sarbanes-Oxley in the U.S., will force most companies to securely archive such communications. That can’t be done with the consumer services; it can with LCS. And with LCS comes presence awareness. The PBX vendors are also all now pushing the notion of presence with varying degrees of enthusiasm, Kelly notes. And awareness of the power of the technology will also enter the enterprise through presence-enabled current and forthcoming versions of the Office productivity suite. Users and IT managers will see presence icons in the Office products and wonder what they’re for and how they might help. Meanwhile, continuing pressure on travel budgets and increased awareness of the effectiveness of Web/audio conferencing will build the market for Live Meeting—even if it’s not a best-of-breed product in the Web conferencing market—and that will provide Microsoft with yet another entry point, Kelly says. It may take more than a campaign of infiltration or selling IT managers on the benefits of the Microsoft vision, though. "This is a bigger issue than what an IT administrator is likely to look at," Kelly says. "The decision will really have to be made at the CXO level, because in order for the enterprise to get real value from unified communications, it will have to incorporate these capabilities into its business processes." Kelly says most Fortune 100 companies already have IP communications strategies in place that are moving them in this direction. Microsoft as PBX Vendor?Another potential impediment for Microsoft is that most enterprises prefer complete solutions and what Kelly likes to refer to as "one neck to choke" for easier vendor management. Microsoft on its own cannot provide this, or at least not now. The most glaring omission in its solution set is voice telephony. To take full advantage of Microsoft’s SIP-based presence technology, for example, it’s necessary to integrate the LCS server with an existing PBX. This can be done using a SIP-to-CSTA gateway device from one of Microsoft’s partners such as Ottawa-based Mitel. CSTA—aka Computer-Supported Telephony Application—is an international standard for interconnecting telephony and computing systems. Mitel announced its gateway product last year and was expected to begin shipping in the first half of this year. The ultimate solution for Microsoft, though, may be to acquire a PBX company. In the IP telephony world, the PBX becomes software running on a server anyway, and Microsoft knows all about server software. For now, it is playing the alliance and partnership card, Kelly says. "But our sense is that if begins to take off and if Microsoft is able to see money to be made, we don’t think they’d hesitate to ." Given the size of the PBX market, it wouldn’t be beyond the realm of possibility for Microsoft to add another $1 billion to $2 billion in revenues by entering the market, he adds. It’s pure speculation at this point, but Kelly sees Microsoft snapping up a company such as BroadSoft Inc. or Sylantro Systems Corp., both small VoIP software vendors. It is already partnering with Sylantro on a triple-play offering to service providers. Kerravala believes Microsoft will wait at least a couple of years to make such a move in order to ensure that whichever product it acquires is mature. "There’s quite a bit of development still required on these products," he says. Kerravala cites Mitel and Zingtel as potential acquisition targets. Complexity To create the ultimate presence-based real-time collaborating enterprise using Microsoft technology will require a significant implementation effort—another factor that could slow customer uptake. Just implementing and integrating the various Microsoft components—including the Active Directory database that underlies much of the presence and collaboration functionality—is a non-trivial undertaking, Kelly says. And then there is the business of integrating needed partners’ technologies. Kerravala believes that the integration effort required will be eased somewhat by the evolution of SIP interoperability standards, but that could take some time. In the meantime, Microsoft will rely on alliances and partnerships with systems integrators and outsourcers, who can undertake all of the integration work and even manage the infrastructure after the fact. They would then be the one neck to choke, Kelly notes. "It’s a marvellous opportunity for integrators," he says. Conclusion Microsoft clearly has some tremendous competitive advantages—if the market evolves the way it thinks it will. Its operating systems power 90% of enterprise desktops; there are more than 400 million users of its Office productivity suite; and it dominates the server software market. Microsoft is also, despite its naysayers, a formidable software developer, and spends billions on research and development. There is no other contender with as much muscle. There are other contenders, though. Cisco and IBM Lotus both have some of the pieces required for a complete presence-based, real-time collaboration solution, and could develop or acquire others, Kelly and Kerravala suggest. The traditional PBX vendors are also now pursuing strategies that involve presence and collaboration. We’re betting that to beat Microsoft in this emerging market, its rivals are going to have to merge to create super-vendors with comparable market clout and resources. Even then, it’s hard to imagine Microsoft not being a major player.

Microsoft as Telecom Vendor: Enter the 800-Pound Gorilla

News | 06/28/2005 4:00 am EDT

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