From: http://yahoo.businessweek.com/magazine/content/05_16/b3929095_mz063.htm
Gates: "IBM Isn't Doing That Much"
Microsoft's chairman says when it comes to productivity software, his company "has to push the frontiers on our own"
There are few markets Microsoft (MSFT ) is pouring more resources into than collaboration software. In 2003, it spent $202 million buying PlaceWare, the No. 2 Web-conferencing company behind WebEx Communications (WEBX ). In March, it agreed to pay $120 million for Groove Networks, a company that developed a technology to make it easy for workers at different companies to collaborate on projects through corporate firewalls. And it's pouring millions more into research and development to come up with new ways to enable workers to communicate using their PCs. Advertisement
All those efforts put Microsoft on a collision course with longtime foe IBM (IBM ). While Redmond has eroded Big Blue's share of the corporate e-mail market, it had watched as IBM jumped into the markets for secure instant messaging, Web conferencing, and shared document workspaces.
No more. Microsoft has plowed into those markets, and it's working quickly to leverage Office, its monopoly desktop-productivity suite, to gain share. Chairman William H. Gates III recently sat down with BusinessWeek Seattle Bureau Chief Jay Greene to talk about his company's stepped-up collaboration software efforts and its latest battle with archrival IBM. Edited excerpts of their conversation follow:
Q: Microsoft has made some acquisitions in the collaboration software business and built some of its own technology. IBM is developing some interesting technology, too. How do you see the competition between the two companies evolving?
A: Well, frankly, IBM isn't doing that much. You can go track. The only product they have left that relates to information workers is [Lotus] Notes. And you can go and get the data from the analysts of how they've lost market share with Notes.
Q: What about their new Workplace product?
A: Well, when people want to look at business information, as far as I know, people use Excel to navigate business information. When people want to be notified about things and organize their communications, it's the Microsoft e-mail client. Outlook and Outlook Express are the primary tools people are using there.
IBM made a serious try with OfficeVision and the Lotus stuff. And maybe they'll introduce a new word processor. Who knows? But in terms of sitting down and thinking about office workers -- how do they spend time, is it in meetings, how should they deal with their priorities -- that's integrated into Outlook because that's where you want to see these new things happen.
We do major improvements to Office every two-and-a-half years or so, and the most important one we'll do is the one that comes out next year. It's based on this idea of collaboration. And the Groove technology -- which we'll offer right now but we'll do deep integration [into Office] -- is part of that next big wave.
Q: Groove is a tiny company with $20 million in annual sales. Is this acquisition really more about getting Groove founder Ray Ozzie in-house, or is it about the technology?
A: Well, fortunately, we get both and they're not that really separable. Ray has built a team that has a vision of how to make people more effective. We're going to incorporate that in to the overall Office picture.
Ray will make very broad contributions because he can tell us how we should improve the Windows platform to help Office. And so you can kind of think of Ray as almost having three roles: He's going to make sure this Groove technology evolves to fulfill his vision of that. He's going to help Office think about collaboration in a more advanced way. And then he's going to make sure our Windows platform work allows him to fulfill the scenarios that he has in mind.
Q: Revenue in the Information Worker group at Microsoft, of which Office is a part, is growing only in the single digits right now. Do you think collaboration software could eventually get the group back into double-digit revenue growth again?
A: Well, the Office business is one of the most incredible businesses there is, measured by the positive impact it has on worker productivity, measured by how innovative that group is, measured by how profitable that group is, measured by how it helps drive the Microsoft platform. Office is an unbelievable thing.
We have to convince people, to have any revenue at all, that the new version is exciting to them. You don't rent Office, you license it, and then you can just sit on it. We've done a series of ads with these guys with these dinosaur heads on saying, "Hey, we've got Office 97. What's wrong with us? We're so inefficient. Jeez." So that's a fairly helpful message to let people know they should get the latest and greatest.
So I'm not the one to make financial predictions, but Office will innovate in areas like business intelligence, collaboration, connection to telephony. Collaboration is one of the big areas of innovation. And the big numbers come when you make it so Office workers have to go to 5% fewer meetings because they're using the SharePoint (a document-sharing application). Or they're using Live Meeting (a Web-conferencing service), so they don't have to take the trip. Or they're connecting up to a partner in a secure way when they would have had to use paper to do that.
And so only by really surprising people with these new productivity applications do we deliver something where the licensing price is a tiny fraction of the productivity benefit that they get out of it.
Q: What are the big areas of innovations or the next big breakthroughs?
A: Well, the collaboration workflow is certainly number one. The connection to real-time communications -- telephony, videoconferencing, audioconferencing -- that's a huge one. Business intelligence is an absolutely huge one.
Q: And how much are you investing in R&D specific to collaboration technology?
A: It's complicated because you have to be very careful how you define these things. Take security: In SharePoint, there are huge enhancements to security. But is that in security, or is that in collaboration?
There's no doubt that Office, after Windows, is the most amazing software business that there has ever been on the planet. And it has had more to do with worker productivity than any piece of software ever has. You could certainly say that within Office, collaboration broadly defined is the top area of R&D investment.
Q: Earlier, you were somewhat dismissive about IBM's ability in this business. Do you think IBM will not be a significant competitor in the collaboration software market for you guys?
A: I think IBM's success in the productivity software business will stay the same that it has been. Do you know anybody using DisplayWrite, OfficeVision, or 1-2-3? What they have is they have a bunch of individual products that they put under an umbrella. WebSphere is an umbrella name. Workspace is an umbrella name.
They are IBM. So you always have to take them seriously, just like we took OfficeVision seriously and their acquisition of Lotus seriously. The only thing really left from Lotus at this point is the Notes piece. And you can look at what has happened with the share of that. They're not even defending what they've had very well at this point. But it just sort of shows in the area of productivity, Microsoft has to push the frontiers on our own. That's the business model that we live in. All we get to sell is our innovation. We don't get to sell the existing strength that we have. It's just the new breakthrough stuff. And hence, you need brilliant people like Ray and his team to drive that forward, full speed.
Credit: http://yahoo.businessweek.com/magazine/content/05_16/b3929092_mz063.htm
Combat Over Collaboration
Microsoft and IBM are fighting to control the info-sharing software market
Starkey Laboratories Inc. is known for its high-end hearing aids, but until recently the process that engineers at the Eden Prairie (Minn.) company used to design them was decidedly low-end. They would cook up a design concept and then e-mail it to colleagues so they could make changes. But because multiple copies of each design were circulating, there was a lot of confusion about which version was the most up-to-date. Advertisement
Rather than wait for Starkey's tech department to deliver a solution, a group of frustrated engineers took matters into their own hands. They used Microsoft Corp. (MSFT ) software to covertly set up an internal Web site for collaboration. They were able to go online to set common goals and deadlines, and to maintain one version of a design for their project that anyone could modify. "It immediately increased productivity," says Timothy D. Trine, vice-president for hearing research and technology. Starkey now has 450 collaboration Web sites for various projects.
KEY SOURCE FOR GROWTH
If Microsoft gets its way, software that lets workers like those at Starkey collaborate anytime and anywhere is finally going to reach the masses. The tech giant is making collaboration one of its top priorities, ratcheting up the competition in one of the most dynamic segments of the software industry. "There's certainly this gigantic opportunity in making workers more productive," says Microsoft Chairman William H. Gates III.
The company's goal is to make the software as easy to use as Word, Excel, or Outlook -- the core programs in its Office application suite. Microsoft itself has spent more than $300 million on two startups and billions more on developing collaboration technologies. On Mar. 15 it began a $100 million Office ad campaign. And by the end of June it will launch Office Communicator 2005, a program designed to make it far easier for workers to initiate everything from an instant messaging dialogue to a phone call to a video chat session -- all from one application.
Microsoft is going head-to-head with another software giant: IBM (IBM ). Big Blue's Lotus Notes software pioneered the collaboration market and now has 118 million users. Last year, IBM began rolling out a new package of applications, called Workplace, that combines collaboration capabilities with the programs workers use to do their jobs every day. Says Steven A. Mills, IBM's executive vice-president for software: "Our game plan here is to be a major player in this next generation."
Both companies see collaboration as a vital source of revenue growth. The $4.4 billion market, the largest part of which is e-mail, is expected to climb at a respectable 8% this year, vs. 6% growth for all software. The hottest niches -- Web conferencing, corporate instant messaging, and team collaboration Web sites -- will grow 27% this year, to $1.8 billion, estimates tech research firm IDC.
Microsoft's latest move is a direct challenge to IBM. In March, it agreed to pay $120 million for Groove Networks Inc., run by Lotus Notes creator and former IBM star Ray Ozzie. Groove uses peer-to-peer technology -- the stuff teenagers use to illegally swap music files -- to let workers at different companies easily collaborate on projects through corporate firewalls. IBM doesn't offer a rival technology. "This is a kick in the gut to IBM," says Erica Rugullies, senior analyst at research firm Forrester Research Inc. (FORR )
Even before the Groove deal, Microsoft was gaining the upper hand. In 2003 it bought PlaceWare Inc., the No. 2 player in Web conferencing behind WebEx Communications Inc. (WEBX ) Analysts believe Microsoft has been growing faster than No. 3 IBM since. Its big advantage is being able to capitalize on its installed base of 400 million Office users by placing easy-to-use links from those applications to its new collaboration software and services. That helped it increase its number of Web conferencing customers 41% since the PlaceWare acquisition. "Microsoft can push these products and get them in front of users," says IDC analyst Robert P. Mahowald.
But IBM will be a worthy rival -- especially in large organizations. Its Workplace melds such desktop programs as word processor and spreadsheet with collaboration software and promises to make it all less expensive and easier to manage than typical desktop computing setups. San Francisco State University, for instance, plans to use Workplace when it's rolled out early next year to give all 32,000 students and faculty the ability to search class information, dig through research documents, and collaborate with one another. "The idea is to really have an electronic campus," says Jonathan Rood, associate vice-president for the university's division of information technology.
While customers are kicking the tires, Microsoft and IBM are kicking each other. Gates dismisses IBM as a serious competitor since so many of its desktop programs, such as the Lotus 1-2-3 spreadsheet, are afterthoughts in today's market. "It's hard for a company that has been out of it for so long and had the various failures they've had to wake up and say, 'We care about information workers."' he says. To Mills, it is Microsoft that is stuck in the past. "Their world is the world of e-mail, not the world of collaboration," he says. Their verbal salvos don't mean much, but as long as they back their talk with innovative new products, customers such as Starkey Labs and San Francisco State will be the real winners.
By Jay Greene in Redmond, Wash.