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Groove will remain independent after the deal, with Microsoft holding a minority equity stake.
The company was launched with nearly a year ago with a great fanfare, including a videotaped testimonial from Microsoft's chairman, Bill Gates.
Groove uses a peer-to-peer model to initiate and maintain workspaces where users interact through instant messaging software, applications, voice and video in real time. Offline can users download updated information from ongoing Groove sessions when they log on.
Ray Ozzie, Groove's chief executive officer, also created the Notes e-mail and collaboration software, which was purchased by Lotus Development in 1994, after the company funded the development costs. Lotus is now owned by IBM, the main competitor to Microsoft's Exchange platform for messaging and collaboration.
Ozzie has again found a large backer to fund his development costs. "Groove is independent but has a sugar daddy," said analyst Dana Gardner at Aberdeen Group.
Steve Ballmer, chief executive officer of Microsoft, said of Microsoft's involvement with the P2P company: "When Groove was first introduced, we indicated how excited we were about the technology, not only because of its advanced use of our .Net tools and infrastructure, but also because it represented a new breed of innovative software that takes full advantage of the PC and the rich communication aspects of the Internet."
Ozzie said: "We have been working with Microsoft on several initiatives as our early customers have asked for tighter integration with Office applications, and an understanding of how we will employ .Net technologies and services.
"We've made significant progress on these and other initiatives and now look forward to working even more closely with Microsoft to ensure that we capitalise on the strengths of our respective technologies to deliver cross-enterprise collaboration solutions for our customers."