UCStrategies Experts Discuss Microsoft Effect on UC

12 May 2010

In this podcast, the UCStrategies Expert team discusses Microsoft, and the company's effect on the unified communications industry, and in particular, the PBX.

The expert panel includes Jim Burton, Marty Parker, David Yedwab, Blair Pleasant, Michael Finneran, Art Rosenberg, Dave Michels, Jay Brandstadter, Don Van Doren, Samantha Kane, and Steve Leaden.

Jim Burton: Welcome to UCStrategies Industry Buzz. This is Jim Burton. I'm here as usual with the UCStrategies expert team. And today, we're going to be discussing the impact Microsoft entering the communications space has had on our industry. I have been got a lot of opinions, but we're going to have this more of an open forum and an open debate today, so everybody is going to jump in. We're not going to go through a sequence like we have in the past. But I will turn it over to Marty to make the first comment and then we will all jump in and try to provide our thoughts and opinions about what I think is a very important subject; Marty...

Marty Parker: Thanks Jim. I've done some thinking about this and I would like to put of couple of thoughts on the table about what Microsoft is really trying to do. So it seems to me that Microsoft may have multiple objectives: number one, expand the value of the Microsoft Office Suite in that competitive market-not the PBX market, that market. Number two; convert other spending such as travel, toll, show, infrastructure telephony to Microsoft licenses. Number three; create a transformative play that integrates communications with business applications including Office.

And number four, mainly involving business communication requirements, which in the process will subsume the PBX. None of those four by the way are about - "lets go attack the PBX," they are about - "let's capture value from Microsoft and some of them will lead up to PBX." So based on this, my expectation is the Microsoft will subsume the PBX in stages based on user cases and evolving functionality, in other words - I am not sure that they ever want to respond to a PBX RFP than although they did at VoiceCon for Allan Sulkin this past time.

The proof of this approach by the way can be seen in the plethora of case studies and marketing support-evidence-they call it evidence-that Microsoft has done pretty well, putting them, to some extent in the thought leadership role for unified communication in the industry. And the way that you see in the case studies is first OCS shows up as an overlay to the PBX having presence, instant messaging, click to communicate, integrated Outlook, SharePoint, and Office. Then next you see that it starts capturing group communications, especially software-based conferencing of IM, voice, web, desktop sharing, and video.

Even all the PBX players are scrambling to catch that move, Cisco even buying WebEx to do it. Also, these functions will extend to include the expanding category of mobile users, Mike Finneran has made the point about Microsoft's mobility play needing more muscle and more content but nonetheless it will capture that. And by that point having captured the overlay, the groups, and the mobile users, they will have reached the tipping point in enterprises where the primary form of communications is the Office Communication Suite, and the PBX is marginalized to special purposes like call centers and gateway functions and so forth. Now the thought of course, is the PBX is going last for a couple more decades most likely just as we have seen in similar past transformations, we still have mainframes even decades after PCs and servers. We still have passenger railroads even after airlines. We still have radios even after television. We still have land lines even after cell phones. In every case, the disruptive technology has underperformed the prior technologies at first, but they opened up new applications, new use cases and new value.

And Clayton Christensen's book "The Innovator's Dilemma" describes those mechanics of market evolutions across many markets. So to wrap up my thoughts there is no doubt from my prospective that Microsoft is expecting this same type of evolution and it is very likely to succeed along with some others in the software-based category. In other words, they will reduce the size and shape up the IP PBX market and create a new growth vector in which they hope to be the leading participant. So with that prospective, I am sure there will be some commentary on that, Jim.

Jim Burton: Clearly, every major PBX vendor historically that we've looked at understands that and they are changing their business model. If you look at each one of them, Avaya's the best one, they say, that is a feature server in the UC environment, which is something I promoted for a long time. So I think that most of the vendors are kind of getting there. It's a question of the battles will be going on, where Microsoft really ends up at the end of the day because, of course, they do have competition from some of the positioning that they are taking-not necessarily on the PBX replacement part, but from companies like IBM. But enough about my comments, let's open it up.

David Yedwab: If I could jump in for a moment, one of the big issues that we are all going to have to deal with as we look at Microsoft's impact on the marketplace, is their overwhelming channel strength. 186,000 business partners focused on the business market of software and solutions around the world, incredible. Probably larger than everybody else's distribution put together. And that's going to be something that will be very interesting to see as it evolves and now that we're getting close to the Wave 14 launch, which is Microsoft's third version of a voice kind of a solution and as we've all heard it said many times before, Microsoft doesn't get it right till the third time, till the third version, and it's going to be very powerful going forward and is already showing major impacts as I believe Marty said, they've definitely captured mindshare along the way and changed the role of users access to integrated communications - may be more later, that's it for me, David now.

Blair Pleasant: I would like to agree and disagree. I was really impressed when I was in the Midwest doing a road show with a reseller and every customer that we spoke to had Microsoft OCS in place. I was shocked at how many customers did have OCS. But it was just for IM and presence. None of them had either integrated OCS with their PBX's or even thought about using OCS just for voice. So, yes the channel is doing an incredible job of getting Microsoft OCS out there or Communications Server as it;s being called now.

But I think there is still a really a big challenge of going to the next step and going from, yes it's great for IM and presence and even conferencing and collaboration to - it's going to be used for our primary voice communications. That I think is going to take a really long time and I think it's just going to be for specific segments of the market. As Marty said there is still going to be coexistence and there are still many segments that I just don't see this being the right solution for, though for some companies and for some business processes, absolutely.

Michael Finneran: I was coming at this in same sort of thought. As usual I do agree largely with Marty. And Microsoft really is coming at voice communications from a completely different direction, as something that augments their desktop presence. But there are a lot of other things we use phones for, including - contact center was mentioned, but we have phones in the factory floor, we have phones in elevators. It won't replace that fundamental voice communication. Certainly though for, the knowledge worker who is in front of the PC all day this certainly seems to be a much, much, smarter way of engaging their communications, than anything the PBX guys have come up with prior.

David Yedwab: But Michael, with your focus around mobility, would you say that the mobile solution in the Microsoft space is perhaps slowing down Microsoft's capability to address this, because of their fits and starts in mobility?

Michael Finneran: I don't think anyone, with the sole exception of RIM really has focused on enterprise mobility. There is a fundamental lack of recognition that the people have a very positive mobile experience today, mobility stands by itself. And everyone is trying to incorporate mobility without realizing that that's the phone that people want. The mobile phone, that's really their ideal for communication at least for the moment. But Microsoft's weakness there will eventually be addressed, but I know if it will be addressed by somebody who starts from either a software standpoint or PBX standpoint. I think the solution mobility is going to have to come from mobile industry and working as a peer in parallel with whatever we're doing in the desktop space.

Art Rosenberg: This is Art. I agree with you Michael. There is still confusion with mobility in terms of who owns and controls what - whether it's the enterprise, whether it's the individual user, whether it's the customer who is by definition a consumer and it's all of the above who have to be able to communicate with whoever, with any format of communication that is appropriate at the moment. And with mobility you never have control over that, you never know when you can talk, you never know when you can look. So, that's something that needs that flexibility that UC brings and the question is who is going to control all of that.

Dave Michels: This is Dave Michels. I have a slightly different view on this - I agree with many of the points made here, but I don't really see the OCS solution as a very strong unified communication solution. I think it's much more of a Microsoft relevant strategy than a UC strategy. And I think what Microsoft is doing is their key revenues sources are Exchange, Windows, and Office. And all of those are under attack effectively - Exchange was probably the best solution for the past decade, great solution for calendaring, but as of recently Exchange really doesn't offer anything that so many of other solutions offer in terms of email contacts and calendaring. Windows is under attack with multiple platforms, even Windows Home because people just use a browser now. Apple, then Citrix VMware and then also of course Office is under attack with things like Google Docs, Zoho, Apple's got their own fleet, some of these things are attacking Office.

And then of course the back-end server infrastructure in general, Rackspace, Linux; so Microsoft has got a problem that they are try to fix and they are doing a great job of it with OCS. And OCS solves a lot of these things and their pitch, in fact is look, you've already got the infrastructure, you may as well support OCS. But really the hidden message in there is you already have the infrastructure today, and we want you to have it tomorrow, we want to make it more sticky.

It's not a great PBX or phone system; it's very weak on the phone side. It has very poor mobility integration and it's very proprietary. It's not a unified communication strategy, although it does a great job with a number of things that it does do. At UC Summitrecently - the Microsoft presenter made a comment. She said that, look, Microsoft is in most companies already on those desktops, most people already have licenses already for OCS and then she bragged that they've deployed a million OCS users. Basically what I have heard was they can't give it away. Apple sold a millions iPads in 28 days and they have been at this for three years now. And it's a very proprietary, sophisticated solution to strengthen Exchange and Office.

Marty Parker: Dave makes a great point and that's exactly one of the points I was trying to make is that, this kind of a disruptive event will always look inferior when it first shows up. The airplane was unreliable in its first instances and no passengers would ride on it. So, it took a while for that to happen and it may take a while here and I agree with Dave that it's built off of their entire suite. The proprietaryness or not, I guess it's a big question that is yet to be seen. Customers are licensing this product. They are spending money for it. The question is, since it is so well integrated with their other platform plays their active directory, their identity management and other tools, will this be a more natural place to evolve communications and even the many, many licenses of instant messaging, will this be a more natural place to evolve communications in an enterprise than something out in the cloud? And I think that's another reason Microsoft is emphasizing the API layers of their product, proprietary or not. They are potentiallyvery effective and the case studies show a very effective integration tool. So, I think Dave is right. There are a lot of questions--that's what we are having this conversation about, but there is also a lot of evidence that this kind of disruptive play is probably going to succeed.

Jay Brandstadter: It depends on the horse that they are riding. Cisco was very successful in making the VoIP market by where they were coming from. They were leveraging the fact that they were data networking entity for everyone, they still are. I don't see the same path from Office or OCS whatever one wants to call it, to taking over communications, enhanced communications, unified communications, whatever one wants to call it. Blair mentioned a key point earlier and I have heard it from others including David. OCS is being placed, but hardly at all with any voice capability; voice is a tough nut to crack.

Don Van Doren: A couple of points on your comments though; you mentioned that Cisco was very effective. Well, I think arguably the first iterations of their voice products were pretty pathetic. And it took a while for them to do that. And as far as what they can leverage - I mean the gap - David mentioned 186,000 business partners that are out there. I think that Marty's point is right. They are seeking to go at this to really define or shape a new way of communicating, but frankly is much more along the lines of what all of us talk about as being unified communications.

They are doing that because their business partners are starting to do the kinds of integration into the business processes that we have been talking about. We saw that at the UC Summit where there just are some really excellent examples of their business partners and systems integrators that are starting to do this. They are coming at this just from a very different direction and as Marty said from the perspective of the existing platforms it will look like there will be some deficiencies. But the point is, it's good enough for some of those applications.

Dave Michels: People shouldn't have to settle for good enough. You know, I find it interesting because IBM and Microsoft are pretty much in the same spot. They both saw that unify communication is growing and becoming more important, and neither one of them had a product or a solution. IBM decided to partner with just about everybody out there to integrate their solution into SameTime and Lotus which they pretty much already had as a product. Microsoft didn't have anything, but they tried it initially when they created OCS the first version and companies like Avaya and Mitel and a number of others created integration to their product.

But that wasn't sufficient, because that wasn't going to - those companies were selling their own voicemails, and those companies didn't have any incentive to keep Windows on every desktop. So, Microsoft had to turn it up a notchand go a little further with OCS. And now with Wave 14, I mean they are actually saying that you need to have dedicated exchange servers for voice and for email. It's really about building that Microsoft web inside the enterprise and, there is something wrong with that. I don't mean to be that negative on it, I just have to a different perspective on it. That all in one vendor solution can be very good, very supportable and, you know, having Microsoft do everything is certainly a decent solution. And they are building up the functionality, I hear Wave 14 is actually going to include call park now, which I think is a pretty big step. But it's not a full grown UC solution and I think it's got a ways to go.

Don Van Doren: I think what you mean to say is that it's not a full telephony solution. And I think that I totally agreed with that...But from the UC perspective...I think that the point is that if you look at how business gets done, most business processes don't revolve around the telephone. There are some business processes that revolve around communications. And voice communications maybe an important part of that. But the migration that's coming I think is to embed those kinds of communication tools, be they voice or data access or other kinds of information approaches--embed those within the application that people are doing all the time. And this is the way I think that this is the change that's coming and this is why Microsoft's alignment with their business partners, you know, the hordes of them, is going to be successful over the long term.

Samantha Kane: I would just like to go back to Marty's comment earlier that Microsoft's thought leadership role in unified communications has excelled significantly. And in Wave 14 it finally recognizes the importance of e911for business stakeholders. At first when I saw this I was concerned that Microsoft was putting on a major emphasis on using SIP trunks to deliver emergency signaling and location which conveys from the client. But the use of the location information server linking and talking to the master street address guide to validate the correct address, prompts the softphone users to revalidate their current location bring all of the unified communication tools together in a 911 dilemma, better than most others today. That being said, there are other vendors such as Avaya-Nortel that have been in the e911 enterprise game a long time, so Microsoft e911 complexity will need to be implemented pretty carefully.

David Yedwab: Samantha brings up a great point about complexity. We are certainly seeing that the UC space overall is potentially extremely complex. And the users need to think about how many vendors that they want to have in the kitchen to help make the salad and the dessert and the entree for the entire meal and those are going to be the challenges going forward and certainly Microsoft is going to be one of the players at the table to either eat everybody's lunch or help create it.

Art Rosenberg: You also can look at the approach to having everything done as a service, in the cloud, rather than having to buy all the pieces because of that complexity.

Jim Burton: Well, I think we have all brought up a bunch of good points. I think that time will tell the answer on this. My personal opinion is that there are vendors out there - that with a little bit of product repositioning could become more important players than they are today. I think that there are companies that should be thought leaders that are not, but I think at the end of the day Microsoft is going to be one of the important players in this marketplace and they will evolve their strategy to take advantage of the opportunities in front of them. I think if someone following Microsoft like I have, for so many years recognizes that they come up with an important strategy of where they want to go and they follow that and they follow it pretty well, but they also make movement from side to side as they realize that there are things they need to deploy. One of those was clearly call centers, they decided they needed to make a play in the call center market. We could argue whether that was the right play for them or not. And then the other was Branch Office and that's a big important part of Wave 14 that's coming out with Branch Office solutions and they have focused a lot more attention on that because they have recognized that all these big customers have Branch Office services that they need to provide in Branch Office locations. So, I think we are going to see Microsoft as an important powerful player moving forward in this, and it's just one more step along the way with Wave 14.

Stephen Leaden: I really concur on all matters with what everybody is saying, of course, we've got diverse opinions here, but I think we are headed all towards the same end point and saying, "Hey is Microsoft really going to be a formidable competitor." Well, I think if we just go back four years and see where Microsoft has come from in the telephony space. They are truly now a formidable potential replacement for the PBX, that wasn't the case just three years ago. I can tell you this that they have the ears of just about every CIO out there, especially who owns anything in the Microsoft exchange space. So, they can literally go after 70 percent of that particular applications market.

So I think they are going to follow a very, very similar path that Cisco has done and I think done it effectively. I can tell you that within the last three months we have had two CIOs of two very large highly successful enterprise businesses seriously look at Microsoft as a potential replacement in the enterprise space literally, one being at 10,000 end points and the other being 3,000 end points with contact center. And I think what we've seen with Microsoft really is a software based approach and again that the phone call as a call doesn't matter any longer. It can be a call, it can be IM chat, it can be presence, it can be email, it can be a link from a word document, it can be a video conference, it does not matter, a call is a call is a call.

And I think from what we've seen and what we've been able to demonstrate at VoiceCon and other shows, I think - in my opinion -- they have figured out telephony. They have gone from not really understanding it to understanding it just like they did with the gaming market several years ago. I think the one thing they still have to figure out is a five nines capability which is inherent in the voice communications market going back to the reliability factor. But yet, from the cost point of view I think they are a killer app when it comes to the total cost of their product compared with the more traditional platforms. So I think we are still in this early adaptor kind of stage, and I think we are going to see them level out within the next... I don't know anywhere between 24 and 48 months max. And I think we will see them as a major, major key player in this market.

Don Van Doren: I just want to add one more thing. Our focus on this call has been on Microsoft, though I think, as Marty mentioned, a lot of these comments really foretell a new way of looking at communications going forward. And I think there are a number of companies obviously that are trying to jump on that new approach, in fact even the legacy telephony vendors are moving this as well. I think while the talk has been largely about Microsoft here, I think really what we are saying is that there is an overall shift in this market - that's going to be occurring too, and all these comments pertain to a lot of other vendors as well as Microsoft.

Jim Burton: Now I agree 100%. The industry is changing. I think a lot of the vendors recognize the need for change. I think that's one of the reasons we saw some of the different changes that some of the vendors have by going private or being a joint venture with another equity firm and I'm speaking specifically Avaya and Siemens--that this market was going through some dramatic changes and they had to reposition themselves as they changed their business model, and they are all doing that.

I think we are open for some really exciting times for some competition coming forward as these vendors position themselves to compete against each other. So, how will Avaya compete with Microsoft, where does IBM fit in the picture? As I always joke, Cisco, if they need anything, they will go off and acquire it, so they will be in good shape. It's going to be an exciting time for all of us in this industry going forward, but it also creates a unique time for the enterprise customers as they need to make sure that they are making strategic product acquisitions that will last for some time.

Anybody who is a Nortel customer has to be saying, "I would never have thought this would happen, and now I have got to be re-thinking my entire strategy." And I think the same thing holds true for quite a number of other vendors that it's really a time for people who sit down and say, "Who is going to be delivering what I want over the next 10 years, will that vendor be around, will they be a strong player in this marketplace?" So I think it's a good time for the industry, I think enterprise customers need to take a look at what all their options are, because everything is changing.

Thanks everybody. We look forward to talking with you all next week.


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