One Year Later: Microsoft VoIP Vision Taking Hold

A little more than a year ago, Microsoft Corp. was carving the epitaph into the gravestone of the PBX.

With the October 2007 unveiling of Office Communication Server 2007, Office Communicator 2007 and a host of other VoIP-specific products, Microsoft cemented its feet into the cut-throat VoIP and unified communications space. At the time, solution providers held pat, taking a wait and see approach to Microsoft’s ambitious claims that the PBX will die a quick death.

’The transformation to software-based communications is going to be as profound as the shift from the typewriter to word-processing software,’ then Microsoft CEO Bill Gates proclaimed at the OCS launch event in San Francisco in October 2007.

Now, more than a year later -- and just after the release of OCS 2007 R2 -- VARs said Microsoft’s vision is starting to ring true and the company has proven itself a viable contender, coming up against VoIP and UC stalwarts like Avaya and Cisco Systems and creating new opportunities to fuel a PBX-free environment.

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’I believe that what Microsoft is doing in the software VoIP space is revolutionary and will become ubiquitous over the next three years,’ said Bill Vollerthum, president of Enabling Technologies, a Glen Arm, Md.-based solution provider. ’We’re waiting for the tsunami. It’s not here yet, but it’s coming. You can see it building.’

When Microsoft launched OCS, Vollerthum admits he had high expectations that weren’t immediately met, but it is R2 that makes Microsoft and its software-based VoIP approach ’ready for primetime.’

According to Vollerthum, Enabling Technologies handled roughly 50 OCS deployments in the first 15 to 18 months. He had hoped for a higher number, but the start of the economic slowdown around October kept some customers at bay. The addition of OCS to his roster, however, has pushed Microsoft to about 70 percent of Enabling Technologies’ overall business, compared to roughly 25 percent at the time of OCS’s launch.

And Vollerthum said he expects R2 to push it even further. He said R2 makes OCS more IP telephony-ready, making it a lifeline for voice communications. R2, he said, can eliminate third party conferencing, remove the need for Web-based conferencing solutions and cut additional costs that CFOs looking to trim.

And with R3 about 15 months away, Microsoft’s OCS traction will grow even further, Vollerthum said, adding that he expects an uptick in R2 production system rollouts throughout the remainder of the year.

Terry Gold, CEO of Gold Systems, a Boulder, Colo.-based Microsoft partner, agreed that OCS is starting to take a strong hold and customers are now looking to eliminating their PBXs and the costs associated with them.

’We’re on track to see companies taking out their PBXs,’ Gold said. Gold notes, however, that getting clients to change their telephony ways can be an uphill battle, but so far, Microsoft has shown it has the chops to truly ring the death knell of the PBX.

Gold said Gold Systems was rolling out Microsoft trials through the middle of last year, a sign that customers are gearing up. He’s encountered small hiccups along the way, but Gold chalks that up to the evaluation and decision process for clients -- companies digesting their VoIP and UC plans.

’There was a pause after summer last year that I didn’t expect,’ Gold said. ’But [the first quarter of 2009] it’s coming back. Customers are realizing they can’t just stop spending on infrastructure.’

NEXT: Going PBX-Free

And while clients are getting up to speed, Gold said his company is eating its own dog food and plans to power down its own PBX for good in the near future.

’We’re actually on track for turning off our PBX in the next couple of months,’ he said. ’It certainly can be done.’

Gold said he’s been able to slash about $5,000 in telephony operating costs per month using Microsoft, between cutting out conferencing costs and phone lines.

Gold said showing customers how Gold Systems really uses Microsoft OCS -- an in-house case study, of sorts -- is a key sales tactic. The ability to illustrate presence capabilities, integration with Outlook and other common applications has been a strong motivator for customers, he said.

Gold said OCS 2007 R2 has also kick-started his Microsoft OCS business.

’Up until now, everyone was trying to integrate into a moving target,’ he said, adding that when OCS integrated deeper with common applications, the software vs. iron argument gained strength.

Gold noted that Microsoft may have been a little bold in its initial proclamation, but the software giant’s ability as mystical prophet can’t be denied. It called for the head of the PBX and the PBX is starting to breathe its last breaths.

What’s giving Microsoft an edge is its IP telephony mantra: ’VoIP as you are.’ Essentially, Microsoft is saying ’don’t rip and replace.’ Using that credo as leverage and promising integration with most telephony systems already deployed, Microsoft has managed to work its way into a number of companies’ VoIP and UC infrastructures based on its friendliness with competing systems.

Gold said his company is seeing a steady uptick in customers adding Microsoft into existing VoIP deployments, but he’s also seeing greenfield companies skipping the PBX entirely and going for the strict software approach.

Vollerthum agreed, saying he’s seeing new VoIP deployments bypassing the PBX altogether.

The cost savings around ditching the PBX and other costly voice services may be a driving force for OCS, Vollerthum said custom applications built on the OCS platform are the ’real jewel.’ So far, he said, Enabling Technologies has developed custom applications that illuminate the voicemail light on phones, track voice calls, instant messages and video conferences between attorneys and their clients for billing purposes and he’s working on a custom application for higher education.

’Custom applications – tying OCS to business process applications – are going to be as ubiquitous as Word and Excell,’ Vollerthum said.

And Gold and Vollerthum are not alone in saying that Microsoft is changing the landscape of VoIP as the industry has come to know it. Microsoft’s entrance into the UC space was a hot topic in CRN’s 2008 State Of Technology: Networking survey, which found that 31 percent of VARs surveyed feared it would create more confusion for potential VoIP customers. However, solution providers also predicted that through 2010 29.6 percent said Microsoft would offer a market advantage to VoIP handsets that interoperate with OCS and 38 percent said it would increase the number of solution providers that offer unified communications.

On the competitive side, 19.7 percent of VARs surveyed expected Microsoft to seriously threaten Cisco’s dominance in the large enterprise IP telephone market, while 26.8 percent expected it to complement Cisco’s offerings, increasing opportunities for both Microsoft and Cisco in the IP telephony space.

NEXT: The Competition Heats Up

And while the Avayas and Ciscos still jockey for market share, Cisco partners are also starting to recognize that Microsoft means business.

’Microsoft is posing a threat,’ said Ben Rife, CEO of Troy, Mich.-based Cisco partner Integrity Networks, noting competitors are pushing Microsoft gear as a cost savings option and offering an attractive alternative to Cisco. ’In the SMB they’re crushing it. The Cisco solution is probably five times more expensive. Cisco has a great product, but it’s not priced properly for the SMB.’ Rife estimated that for a 20-user system, a Cisco UC solution set would run between $20,000 and $30,000, while a Microsoft deployment would hit the $4,000 to $5,000 mark. Rife added that he sees some Cisco partners converting to Microsoft to make a stronger profit.

According to a recent Forrester Research report, a standard Microsoft UC deployment costs a good deal less than many of Microsoft’s top competitors. The report indicates that a Microsoft UC deployment for 1,000 seats runs roughly $32 per user, while standard UC systems from Avaya and Cisco run about $185 and $315 per user, respectively.

Still, right now Rife said he doesn’t see Microsoft competing directly for Integrity Networks’ unified communications business, which Rife anticipated will see 30 percent year over year growth for 2009, a number he said is conservative.

Rife’s estimation is on par with the State Of Technology: Networking survey, in which 46.5 percent of solution providers polled said Microsoft’s entrance into the UC space will open up the SMB market significantly more to unified communications solutions through 2010.

’The opportunities we have in the pipeline now are more than we’ve ever had and the deal sizes are bigger,’ Rife said of pending UC deployments. With his UC deals growing, Rife said he plans to stick with Cisco, despite Microsoft’s attractive offers. Cutting over to Microsoft now would require new staffing, training and a host of other resources, along with a large learning curve.

Gold, too, said the competitive landscape is still forming around VoIP and UC. He runs into the likes of Avaya, Nortel Networks and Cisco frequently, but doesn’t see favor leaning toward one specific vendor, for the time being, at least.

’It’s going to be a while before you have Microsoft and any other one going head to head in a winner-take-all,’ Gold said.

Vollerthum said Microsoft is gaining a competitive edge, mostly fueled by R2.

’The dinosaurs are going away,’ he said. ’Microsoft is here to stay in this space. They’re going to be a dominant force in this market. Them and Cisco. But Cisco’s dominance is now in jeopardy.’

The fact that Microsoft controls the desktop gives it a leg up on the competition. That, coupled with the ability to integrate custom applications tied into the voice system and the ability to remove costly hardware gives Microsoft a strong value proposition that competitors just can’t match.

’Customers are saying ’Let’s get the heck away from the big iron that comes with high maintenance costs and proprietary hardware,’’ he said. ’The cost savings are hard dollars in the first year. It’s so appealing for CFOs, CIOs and CEOs they’d be fools not to.’