Microsoft is bound to play a growing role in enterprise telephony systems over the next few years, helping them to evolve beyond the simple features such as speed dial, conference call, and voice mail most companies know today. What's less clear is what that role will be.
The Redmond, Washington, software giant is likely to muscle in on the territory of traditional vendors of private branch exchanges (PBXs) and even threaten the desktop handset, through PC-based "soft phones," according to some industry analysts. However, Microsoft and some major vendors in that market say they don't see themselves on a collision course. Microsoft may increasingly provide the platform software for telephony, but more specialized vendors will write the applications on top, they said.
It may be a tempting target: Counting both the servers and clients in this category--IP PBXs and handsets or soft phones--IP-based telephony products worldwide should bring in $6 billion per year by 2008, according to IDC analyst Tom Valovic, who earlier this year wrote a report on Microsoft's possible future in this market. Between 10 and 30 percent of that spending will go toward applications, IDC estimates.
Cisco Systems' acquisition of Latitude Communications, announced earlier this month, may be a step up the software stack toward what has been Microsoft's territory in the data world, some analysts said. Latitude makes audioconferencing, videoconferencing, and Web-based collaboration tools.
Making Things Simpler?
A Microsoft move deeper into telephony and communications software could place complex decisions in the laps of IT executives who are used to dealing with one vendor for telephony systems and others for data applications, Valovic said. Microsoft could be part of a coming shakeout.
"Life will probably be initially more complicated but eventually more simple," he said. "There's going to be a transition of vendors. We don't know which vendors are going to be the winners and who will be the losers."
At the same time, telecommunications departments and IT groups will need to work out where the new telephony infrastructure should go, said analyst Zeus Kerravala of The Yankee Group. The same functions may be available on traditional computing platforms and on network platforms such as routers, he said. A company shouldn't do it two different ways.
A New Voice
What's most disrupting to the once staid business of enterprise phone systems is voice over IP, which makes phone calls into data packets. The special requirements of transmitting the spoken word finally are being met by prioritization systems that can set voice apart as it flows over the same network as other packets. Basic IP networks send data packets without regard to exactly when or in what order they arrive. Thus, the decades of organizations' having two totally different networks are slowly coming to an end, vendors and industry observers have said.
Companies' traditional phone systems have been built around the traditional PBX, a proprietary switching platform with its own specialized software. This type of box typically handles internal extensions, voice mail, call forwarding, conference calling, and other features. IP PBXs are gradually changing that proprietary platform business into an industry in which vendors are distinguished by the capabilities of software that runs on standard platforms. In addition, VOIP holds out the promise of new kinds of communications systems that combine voice calling with other applications, such as videoconferencing, text messaging, and Web-based collaboration.
That makes it the kind of business at which Microsoft has excelled, Valovic wrote in his report earlier this year. Valovic believes Microsoft could become a major vendor of the software that enterprises use for communication of all kinds. In some areas a clash with current leading vendors is probably on the way, Valovic said in an interview.
"We think that cooperation will morph into a more competitive model as these IP PBX vendors kind of move up the food chain and develop more high-end enhanced services and applications," Valovic said.
Yankee's Kerravala was more blunt.
"Microsoft is in this business to stay, and I think they'll certainly be a strong threat to most of the phone system vendors, probably in two years," Kerravala said.
"In some ways it's advantage Microsoft, because they understand how to be a software company," whereas competitors such as Cisco Systems and Nortel Networks have their roots in hardware, he said. For one thing, Microsoft can take advantage of an army of Windows application developers, Kerravala said. If the company follows the pattern of its moves into other areas of technology, it may have a strong edge, he said.
"If Microsoft does offer it at a cheaper price than the competition, maybe even free, it'll be difficult to get people to not at least try it," he said.
Corrugated Supplies, in Bedford Park, Illinois, uses Cisco VOIP phones, and for call control runs Cisco CallManager software on Windows 2000 Server; it uses a Microsoft SQL Server database for call history, phone configurations, and other information. For voice mail, the company uses Cisco's Unity software and hooks it into Microsoft Exchange. Calvin Rice, network systems manager at the corrugated-paper manufacturer, said he is happy with those systems.
Though he has no plans to change now, Rice said the Microsoft brand wouldn't put him off if he were looking for a telephony application. To the contrary, Microsoft would be more attractive than some other vendors because Corrugated already uses so many Microsoft products, he said.
There is a high bar to meet: Such an application would have to be cost-effective, fit into the IT architecture, and match staff skills, Rice said. It would have to be stable, too, added Jack Hsia, a Corrugated software engineer. But being able to streamline operations and training by standardizing on a few vendors is a key goal in any purchase, because Corrugated has a small IT staff handling several facilities, Rice said.
"I don't have a dedicated telco guy anymore," Rice said.
Playing a Broader Role
There are two major indications Microsoft may have its eyes on a broader enterprise communications role, according to IDC's Valovic: Office Live Communications Server, a platform for instant messaging and presence (indicating whether a user is available), and Microsoft's inclusion of Session Initiation Protocol client software in Windows XP. SIP is intended as a universal signaling protocol for all kinds of real-time sessions over IP networks.
As a platform for presence, Office Live Communications Server could play a role in unified communications at the desktop, Valovic said. Whether someone is available and for what form of conversation is a key part of the communication platform of the future, which should eliminate the game of tag that forces contacts to call different places and leave messages, he said. A communications server, like an IP PBX, can be a converged platform for many kinds of communication, he said.
For its part, Microsoft sees itself mostly as an infrastructure vendor, providing software platforms for the new generation of specialized applications, said Ed Simnett, lead product manager for Office Live Communications Server. Microsoft hopes the vendors of software that is replacing PBXs write that software for Windows Server 2003 and Office Live Communications Server. Microsoft won't be competing with them anytime soon, in his view.
Because Windows MSN Messenger includes a SIP software stack, a voice call can be set up between two MSN Messenger clients, but that doesn't mean the PC can replace a business phone, he said. The capabilities users expect from an office phone, even as simple as a light that shows if there is voice mail waiting, aren't there. Other vendors can provide that software, he said.
"PBXs have developed to have a pretty interesting feature set, and replacing that feature set isn't something you can do overnight," Simnett said.
What About the PC?
Valovic isn't sure Microsoft will stay back when it comes to PCs as voice clients.
"This is a clue to their longer-term strategy, because SIP is essentially a VOIP standard," he said. "My feeling is that they are to a certain extent maintaining a stealth position about some of this development," Valovic said.
Today Microsoft is working with partners such as Siemens Information and Communications Networks, the communications equipment arm of Munich-based Siemens, to make phone calls part of a broader menu of user options. Siemens ICN's OpenScape is an application that will run on Office Live Communications Server. The software will bring together voice and data communications with presence and reachability anywhere, said Mark Straton, vice president of global marketing at Siemens ICN. An OpenScape buddy list can show whether a contact is available by phone, let the user make the call just by clicking on the phone icon, and direct the call to whatever phone number the contact is using.
OpenScape also offers a personal communications portal that can be used through a Web browser, a voice interface, or an interface embedded in a frequently used application. With text-to-speech technology, users can retrieve e-mail as voice messages.
Though Straton sees Microsoft continuing to play a role in this sector, it is through Windows as a platform for applications such as OpenScape. A vendor of converged enterprise communications platforms needs to do many things: Make desktop devices and gateways, write enterprise-class applications, and support systems that stay up all the time, without interruption, he said. Microsoft sells little hardware, isn't dominant in enterprise-class applications such as databases, and is unlikely to invest in systems integration and service of the kind Siemens provides around the world, Straton said.
Cisco Systems, which aims to provide the infrastructure for convergence with its IP Communications product portfolio, doesn't see Microsoft on its heels either, according to Craig Cotton, manager of product marketing at the IP Communications business unit. And Charlie Giancarlo, senior vice president and general manager of switching, voice, and storage at Cisco, said Cisco expects to see Microsoft as a partner rather than as a competitor. The two companies already are cooperating with each other in this area.
Microsoft and Cisco products don't overlap now, Cotton said. In addition to hardware for convergence, Cisco makes some software, including a soft-phone application for Windows PCs. It doesn't make instant messaging software and doesn't know of any product plans from Microsoft that would compete with Cisco here, Cotton said.
However, in the future, he sees enterprises using a rich variety of communications applications running over a Cisco IP Communications infrastructure.
"Microsoft will provide some of those, Cisco will provide some of those, and other vendors will provide others," Cotton said.
One thing is clear: If Microsoft does move up the telephony software stack to take on the current players, it won't happen overnight. In the short term, expect to see more cooperation and partnership, IDC's Valovic said. And don't expect "a huge changing of the guard" but rather competition in certain segments of middleware, he said. Even if Microsoft starts competing with Cisco, the two companies will probably keep cooperating at the same time, Yankee's Kerravala believes.
Additionally, phones won't be disappearing anytime soon, vendors and analysts said. Operators in some call centers already make all their calls via a PC with a headset, but the average desk worker will keep the phone. Handsets are a familiar device that can be complementary with a PC, they said.
"You may have a PC with voice capability, but you'll also have a phone with other capabilities," Kerravala said. In some places, such as an office lobby, an IP phone with extended capabilities may be enough, he added.
Either way, technologies are coming together, and that makes some changes inevitable, IDC's Valovic said.
"Converged technology creates converged markets, and market convergence means IT vendors competing with telecom vendors," he said.