Microsoft will muscle in on enterprise telephony systems market

Microsoft will play a growing role in enterprise telephony systems over the next few years, helping them to evolve beyond the...

Microsoft will 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. But, what is less clear is what that role will be.

The software company is likely to muscle in on the territory of traditional suppliers of PBXes (private branch exchanges) and even threaten the desktop handset, through PC-based "soft phones", according to some industry analysts.

However, Microsoft and some major suppliers in that market say they do not see themselves on a collision course. Microsoft may increasingly, provide the platform software for telephony, but more specialised suppliers will write the applications on top, they said.

Counting both the servers and clients in this category - IP (Internet Protocol) PBXes and handsets or soft phones - IP-based telephony products worldwide should bring in $6bn (£3.6bn) per year by 2008, according to IDC analyst Tom Valovic. Between 10% and 30% of that spending will go toward applications, IDC estimated.

Cisco Systems' acquisition of Latitude Communications, announced last week, 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.

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 supplier for telephony systems and others for data applications.

"Life will probably be initially more complicated but eventually more simple," Valovic said. "There's going to be a transition of suppliers. We don't know which suppliers 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 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 should not do it two different ways.

What is 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 prioritisation 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. Therefore, the decades of organisations having two totally different networks are slowly coming to an end, suppliers and industry observers have said.

Companies' traditional phone systems have been built around the traditional PBX, a proprietary switching platform with its own specialised software.

This type of box typically handles internal extensions, voicemail, call forwarding, conference calling and other features. IP PBXes are gradually changing that proprietary platform business into an industry in which suppliers 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, said Valovic. He believed Microsoft could become a major supplier of the software that enterprises use for communication of all kinds. In some areas a clash with leading suppliers is probably on the way.

"We think that co-operation will morph into a more competitive model as these IP PBX suppliers kind of move up the food chain and develop more high-end enhanced services and applications," Valovic said.

"Microsoft is in this business to stay, and I think they'll certainly be a strong threat to most of the phone system suppliers, probably in two years," Kerravala said.

In some ways, Microsoft has the advantage, 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. If the company follows the pattern of it's moves into other areas of technology, it may have a strong edge.

"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," Kerravala added.

Corrugated Supplies uses Cisco VoIP phones and for call control runs Cisco CallManager software on Windows 2000 Server, using a Microsoft SQL Server database for call history, phone configurations and other information. For voicemail, 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 has no plans to change now. The Microsoft brand would not put him off if he were looking for a telephony application.

To the contrary, Microsoft would be more attractive than some other suppliers because Corrugated already uses so many Microsoft products.

However, such an application would have to be cost-effective, fit into the IT architecture and match staff skills, Rice said.

Being able to streamline operations and training by standardising on a few suppliers is a key goal in any purchase, because Corrugated has a small IT staff handling several facilities, Rice said.

There are two major indications Microsoft may have its eye on a broader enterprise communications role, according to IDC's Valovic: Office Live Communications Server, a platform for instant messaging (IM) and presence (indicating whether a user is available), and Microsoft's inclusion of SIP (Session Initiation Protocol) client software in Windows XP. SIP is intended as a universal signalling protocol for all kinds of real-time sessions over IP networks.

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.

A communications server, like an IP PBX, can be a converged platform for many kinds of communication.

For its part, Microsoft sees itself mostly as an infrastructure supplier, providing software platforms for the new generation of specialised applications, said Ed Simnett, lead product manager for Office Live Communications Server.

Microsoft hopes the suppliers of software that is replacing PBXes write that software for Windows Server 2003 and Office Live Communications Server.

Because Windows MSN Messenger includes a SIP software stack, a voice call can be set up between two MSN Messenger clients, but that does not 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 voicemail waiting, are not there. Other suppliers can provide that software, he said.

"PBXes have developed to have a pretty interesting feature set, and replacing that feature set isn't something you can do overnight," Simnett said.

"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 Network, the communications equipment arm of 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 supplier 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, is not 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, does not see Microsoft on its heels either, according to Craig Cotton, manager of product marketing at the IP Communications business unit. Cisco expects to see Microsoft as a partner rather than as a competitor. The two companies are co-operating with each other in this area.

Microsoft and Cisco products do not overlap now, Cotton said. In addition to hardware for convergence, Cisco makes some software, including a "soft phone" application for Windows PCs. It does not make instant messaging software and does not know of any product plans from Microsoft that would compete with Cisco here.

However, in the future, he sees enterprises using a rich variety of communications applications running over a Cisco IP Communications infrastructure.

If Microsoft does move up the telephony software stack to take on the existing players, it won't happen overnight.

In the short term, expect to see more co-operation 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 added.

Even if Microsoft starts competing with Cisco, the two companies will probably keep co-operating at the same time, Yankee's Kerravala believes.

Additionally, phones will not be disappearing anytime soon, suppliers and analysts said. Operators in some call centres 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.

Either way, technologies are coming together, and that makes some changes inevitable, IDC's Valovic said.

Stephen Lawson writes for IDG News Service

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