Cisco, Avaya, Nortel, 3Com, Alcatel ... Microsoft?

The name “Microsoft” is not top of mind whenever one thinks of suppliers of enterprise phone systems. But Microsoft hopes that will change, providing another glimpse into the ways the technology supply chain is changing. Microsoft unveiled its own IP phones in May and is preparing for a major launch of Office Communications Server, the latest revision to Live Communications Server. Not to be alarmists, but “road kill” comes to mind as one surveys the existing line up of providers of business phone systems. Heck, it has to. As Cisco came essentially out of nowhere to claim a lead position in the enterprise phone systems market, so now Microsoft is about to make its move. To be sure, Microsoft is “playing nice” for the next two years, designing its new line of phones to work with existing PBXs (private branch exchanges). Inevitably, Microsoft will go further. That is what Office Communications Server 2007 and Office Communicator 2007 are about, after all. To bolster its credibility, Microsoft last June launched its multifaceted partnership with Nortel Networks, dubbed the Innovative Communications Alliance, which gave Microsoft access to Nortel intellectual property around VoIP. Microsoft’s plan is to slowly introduce more advanced PBX functionality into its products such as the OCS and work its way into the enterprise.

In the meantime, Microsoft will do what it can to “freeze the market,” a time-tested technology technique. And though virtually no enterprises have indicated they even would consider Microsoft a credible candidate to replace their current phone systems, everybody now lives in a different world, where unknown competitors can seize the heights of a market. Cisco’s emergence as a leading enterprise phone system provider is all the proof Microsoft needs to see. In fact, the shift of value from hardware to software is a broad theme observable almost everywhere in the communications market. Both Microsoft and Cisco, for example, agree that networked software is the future. And that’s why 80 percent of the companies Cisco now acquires are software companies. In the past, 80 percent of its buys were of other hardware suppliers. But that sort of world exposes every major supplier and service provider to competition from just about everywhere else. Software’s importance is how Cisco grabbed a quarter of enterprise market share for phone systems, for example. Software is why Google now offers a network-delivered desktop productivity suite. Software is why Microsoft is chasing the online ad business and Google; why Cisco and Microsoft want to be big in the conferencing business. Hence Cisco’s WebEx Communications purchase puts it in head-to-head competition with Microsoft Live Meeting. In broad terms, here you have a dominant provider of core networking infrastructure moving into new markets that are the same ones a dominant provider of desktop productivity applications is moving into. At the same time, one has new contenders springing up almost overnight and creating brand new application businesses that somehow wind up rousing the attention of core networking and desktop productivity providers. No better question exemplifies the concern than the question “what will Google do?”

So the question many suppliers and users of enterprise voice and communications services will be asking themselves is “what their Microsoft strategy is.” Alec Saunders, Iotum CEO and a former Microsoft executive, says every company in the business phone system space has to have an answer for that question, because Microsoft does. In the late 1990s, when the first Microsoft smartphones were being designed and Saunders was working in the Windows CE group, the “the core strategy was to tie the phone to the Microsoft Office and BackOffice product lines,” says Saunders. “Fast forwarding to today, the biggest growth area in Microsoft’s Office Systems Division is, unsurprisingly, communications,” says Saunders. “That strategy, coined a decade ago, lives on.” Office Communications Server is about “the total integration of communications and productivity applications,” Saunders notes. “With the delivery of these products, we are witnessing the beginning of the end of the transition of communications systems from yesterday’s PBX and desk phone solutions to complete software solutions,” says Saunders. Though the initial implementation works in conjunction with existing phone systems, the longer term vision is to dispense with all that. OCS will work with existing phone systems, but with the Communicator soft client one can use the PC itself as the phone. So what becomes of the office phone system? In one sense, it remains, but only as a software application running with a greater variety of end points, including desktop “phones” but embracing PCs and other devices, especially mobile smartphones.

“Microsoft’s recently announced Response Point embedded PBX for small and medium business is following a nearly identical strategy,” says Saunders. “Early pioneers in this market, like Epygi, have watched as first Linksys, then Digium and now Microsoft are entering this space with offerings focused on small business.” Prior to Microsoft, “the only OEM strategy for building an embedded PBX was Digium,” says Saunders. “Microsoft’s focus on enabling a hardware channel—putting D-Link, Quanta and Uniden into direct competition with Digium for the OEM dollars, and enabling an ecosystem to compete against Linksys and smaller players like Epygi— is bound to pressure the market from every direction. “In each case, enterprise, smartphone and embedded, Microsoft is commoditizing the underlying platform,” says Saunders. “By building shared media, signaling and API (application programming interface) infrastructures in these environments, they can achieve economies of scale and attract developers and OEM partners at a rate which others will be hard pressed to match.” Competitors can survive and thrive if they launch businesses complementary to OCS, says Saunders. Or they can build vertical market apps that integrate with OCS. A few might even be able to make a go of things as the alternative to OCS. “Microsoft’s plan is a 10 to 15 year view of the market, which is only starting to be visible today,” says Saunders. “Taken in totality, it’s a plan to dominate every aspect of enterprise communications, with the exception, perhaps, of the carrier network.” Pretty soon, lots of executives will be announcing what they intend to do about Microsoft. They might not say it in so many words. But that’s what it will be. Here comes OCS. Get ready for road kill. IP