Microsoft's Deal To Buy Groove A Big Win, VARs Say

Industry observers have long predicted that the two companies would combine forces because of Microsoft's substantial investment in Groove and the latter's innovative offline, peer-to-peer (P2P) and authentication capabilities, which enable ad hoc workgroups across firms to collaborate with outside partners, suppliers and customers. "This is kind of inevitable," said one source close to Groove.

Gates formally announced the agreement to acquire Groove on Thursday, saying that the Beverly, Mass.-based company's technology would be tightly integrated with Microsoft's next generation of Windows, code-named Longhorn, and Microsoft Office 12, including SharePoint.

Other company executives said the "trifecta" of Office/SharePoint, Microsoft's Live Communications Server 2005 realtime platform and Groove's Virtual Office will extend Microsoft's lead in the collaboration space. They also hinted that Groove's technology would be integrated with Microsoft Business Solutions (MBS) offerings that support customer business processes.

"The way people work across locations and different organizations requires new technologies, and the Groove product has fantastic and unique features we want to fit into the Office system," Gates said in a conference call Thursday from Microsoft's Redmond, Wash., headquarters. "The P2P and authentication capabilities Groove built into their apps, we want to take the equivalent things we've been incubating at Microsoft and bring them in to strengthen the platform. One big thing about Longhorn will be its peer-to-peer capabilities."

Microsoft has long struggled with P2P technology and had invested in a Windows XP P2P development kit, but little became of that effort. Besides giving Microsoft's collaboration strategy a boost, Gates said the company's deal to buy Groove also fulfills a longtime dream of hiring Lotus Notes creator Ray Ozzie, the chairman, CEO and founder of Groove. Ozzie will serve as one of Microsoft's three CTOs, reporting directly Gates.

"For Bill it's always been about Ray," said one Microsoft insider. At one point Gates even dubbed Ozzie the best programmer on the planet

Ozzie's contributions as one of the early application developers on DOS and Windows and later on Lotus Notes and Groove's Virtual Office make him an ideal candidate for Microsoft's senior leadership team, according to Gates. "For me, I've thought about hiring Ray and his team for a long time. It's a big day for me that is finally taking place," he said.

The Groove acquisition will accelerate Microsoft's ambitions in the collaboration space, especially against rival IBM, said David Via, CEO of Wolcott Systems Group, a Fairlawn, Ohio-based solution provider. "It's a huge coup for Microsoft. Ray [Ozzie] is one of the most respected figures in the industry," Via said. "It could be to Groove what IBM's acquisition of Lotus was back in '95, a huge accelerator."

Other Microsoft partners also expressed enthusiasm, noting that Groove's software fills a big hole in Microsoft's collaboration lineup. The deal is plus for all partners in Microsoft's Information Worker division, noted Ted Dinsmore, president of Conchango, a New York-based solution provider.

"This fills in a hole in the office to back-office position for Microsoft. The offline feature is the hole, and Groove's peer-to-peer [software] allows better fits between Windows SharePoint Services and SharePoint Portal Server [SPS]," Dinsmore said. "With this acquisition, there are no competitors that have this depth, a full suite of collaborative [applications]. The question then becomes, what will IBM do now?"

Another Microsoft partner agreed. "We love it," said Ken Winell, managing executive at Vis.align, a West Chester, Pa.-based solution provider that recently acquired collaboration services provider Econium. "[The Groove deal] gives Microsoft the ability to tackle the offline and mobility piece of collaboration that has been missing in their stack. One of the key issues that enterprises encounter with SharePoint is the ability to move and work on documents while not connected. Users can check documents out; however, the extra steps required are not as intuitive as the Groove Mobility workspace for SPS. It allows me to select which documents and folders I want to bring with me, and then when I connect it seamlessly syncs."

Groove's technology also will integrate with and leverage Microsoft's instant-messaging and realtime communication platforms, Winell added.

Gates said the ability for Microsoft customers to immediately build on their current investment in SharePoint with Virtual Office--and enhance that later--made Groove a compelling buy for Microsoft. Groove's file-sharing technology, for example, lets users insert sharing, synchronization and conversation icons directly into Windows Explorer. That enables every Windows folder to have an attached Groove button that can turn the folder into a SharePoint workspace, allowing users to share the folder with people inside or outside the company and have chats and conversations within that folder. Groove's Virtual Office 3 upgrade, announced last summer, for the first time targeted the company's software at small and midsize businesses, extending the vendor's traditional base of enterprise and government customers.

Michael Cocanower, president of ITSynergy, a Phoenix-based SMB solution provider, said he currently doesn't deploy Groove software but held a seminar this week about SharePoint's value to lower-midmarket customers. The integration of Groove's technology and Microsoft's collaboration platform and SharePoint Workspaces can only be a good thing for the SMB space, he said.

"It seems to me that their product/feature set will ultimately become integrated in the SharePoint platform," Cocanower said. "This [acquisition] announcement seems to only enforce that making an investment in SharePoint is a good investment for the future."

Yet one Groove competitor in the SMB space disagreed. "By announcing its acquisition of Groove Networks, Microsoft has made a move but still finds itself with a complicated, peer-to-peer collaboration technology that does not address the massive SMB space," Rick Faulk, CEO of Intranets.com, said in a statement. "Unlike Groove's technology, we believe that professionally managed and hosted Web-based solutions--available from anywhere with an Internet connection--are the best way to serve this market."

Ozzie and Microsoft Information Worker Group Vice President Jeff Raikes also participated in the acquisition announcement from Groove's Beverly headquarters. "[Groove's software] will influence how collaborative technology can be broadly used across Microsoft applications and business proceses," Raikes said. Raikes was Groove's "executive sponsor" within Microsoft.

The integration of the two companies' platforms and peer-to-peer distributed capabilities will enable Microsoft to extend its lead in Office and SharePoint collaboration outside the firewall, Ozzie said. With the deal, Ozzie said he will "set up a life in Redmond" but also retain his home in the Boston area. "I'll be spending a lot of time on planes," he quipped. As a Microsoft CTO, Ozzie will serve alongside Craig Mundie, senior vice president and CTO of advanced strategies and policy, and David Vaskevitch, senior vice president and CTO of Microsoft's business platform.

After the announcement, Groove President and COO David Scult said there are no plans for any layoffs at Groove, which employs 200. He declined to comment on financial aspects of the deal, terms of which weren't disclosed. Sources close to Groove told CRN that as part of the transaction, all employee options were cancelled and that Scult and two other top Groove executives--excluding Ozzie--will receive a $1 million bonus as part of the deal. Scult declined to discuss that information.

Microsoft already owns roughly 40 percent of privately held Groove in the wake of several investments since the collaboration software vendor's founding in 1997, including an initial $51 million funding in 2001. The Groove operation will continue to be run out of Groove's Beverly headquarters, according to Microsoft. Though Ozzie will serve as a Microsoft CTO, he and Scult will continue to oversee the Groove operation, a Groove spokesman confirmed.

Groove runs a consulting services arm as a nonprofit support center for enterprise customers, and recently the company began developing a partner channel for the Virtual Office 3 upgrade, Scult said. The consulting unit serves as a "trusted adviser" to customers, Scult said. He declined to say if Groove's consultants will be folded into Microsoft Consulting Services or if Groove's handful of channel partners will be inducted into Microsoft's partner program.

News of the Groove acquisition comes on the heels of Microsoft's Convergence 2005 conference in San Diego for the MBS division. Also this week, Microsoft took the wraps off its next-gen, realtime collaboration suite, including the Office Communicator 2005 client--formerly code-named Istanbul--and Microsoft Office Live Communications Server 2005 Service Pack, as well as Microsoft Office Live Meeting 2005. This week, Groove also announced the Virtual Office 3.1 update.

During briefings after the Groove acquisition press conference, Microsoft executives couldn't say if there would be special promotions or bundles of the Microsoft and Groove collaboration software for partners, but they said it stands to be a big business for the channel.

"Our first order of business is selling Office 2003 and Groove 3.1," said Steven Sinofsky, Microsoft's senior vice president of Office. "We're very excited for the opportunities channel partners will have."