Microsoft Invests in Groove Networks

Microsoft has bought a minority stake in peer-to-peer business software startup Groove Networks, headed by Ray Ozzie, for $51 million in cash.

Groove software installed on corporate PCs accommodates peer-computing applications for business use, allowing users to communicate over the Internet without a central server. Groove's technology management software uses servers in the system, but also incorporates peer-to-peer computing concepts such as distributed information storage. Groove launched the inaugural version of its software in April.

With the fall of Napster and the general economic malaise in the technology industry, peer-to-peer computing companies have come upon hard times. Groove has been an exception, raising about $63 million to date before Microsoft's $51 million investment. Microsoft bought about 20 percent of Groove with the investment, says Richard Eckel, a Groove Networks spokesperson.

Shared Projects

Microsoft and Groove have worked together to create Web and peer services based on XML (Extensible Markup Language). For example, the companies want to make it more convenient for Groove users to manage personal information like contact lists and calendar data by tightly integrating Microsoft's Outlook e-mail and calendar software with Groove's software.

Also, the two companies want to use Microsoft's Passport sign-on and authentication service to identify Groove users on a network, Eckel says. The companies are also working on tighter integration between Groove and MSN Messenger, he adds.

Finally Allied

Microsoft's investment also draws Lotus Notes creator and Groove Networks founder Ozzie into tighter orbit around Microsoft.

"We love Ray Ozzie," said Steve Ballmer, Microsoft chief executive officer, at Gartner's Symposium/ITxpo in Orlando. "Now we can bring Microsoft and Groove closer together."

"So now you finally got the creator of Lotus Notes on your side?" Gartner analyst Tom Austin asked with a smile.

"Finally!" Ballmer answered with a laugh.

Juan Carlos Perez in Orlando contributed to this report.