IBM has committed to investing $1 billion in its unified communications strategy in the next three years as it sharpens its sword to do battle with Microsoft in a fast-growing market.

Speaking Monday at IBM's Somers, N.Y., campus, executives including Steve Mills, the senior vice president of IBM's software group, said IBM is ramping up its investment in products such as Lotus Sametime to provide unified communications to the largest business customers, which the company defines as having 1,000 or more employees. This is also the sweet spot for IBM's Lotus Notes collaboration software, the latest version of which includes the Sametime unified communications client.

Unified communications refers to the combination of instant messaging, Web presence, VoIP, videoconferencing, and other ways workers can collaborate and communicate in real time through one user interface. According to IDC, the market will grow to $17 billion in annual revenue by 2011.

Microsoft recently unveiled its competitor to Sametime, Office Communications Server, offering it as a hub for unified communications built on a Windows infrastructure. That move has brought IBM out of the woodwork touting its competitive offerings.

IBM differentiates itself from Microsoft in several ways, including its 10-year experience with the Sametime product and its ability to support heterogeneous IT environments.

Sametime is historically a corporate instant-messaging client; IBM claims to have 20 million stand-alone Sametime users. Two years ago, it rearchitected the software on the Eclipse open source framework to make it easier for third parties to build add-on applications. It also added VoIP and video functionality.

On Monday, IBM demonstrated some new functionality that will be part of Sametime by the end of the year. Called Unified Telephony, it helps users manage telephone calls from within Sametime by routing calls to various devices and setting rules on how to handle calls based on status. For example, a user can set Sametime to direct calls to a mobile phone if they are working remotely.

IBM has built the basic functionality of Sametime into Lotus Notes to link unified communications to its collaboration software in a similar way that Microsoft is linking Office Communications Server to its Office productivity and Exchange Server messaging software. Executives also linked collaboration and unified communications in the messaging about their strategy.

Though Microsoft constantly touts customer wins for Outlook/Exchange over Lotus Notes, in an interview Monday, Mills said Lotus is gaining share in the "market where we compete with Microsoft," which is among the largest business customers. He acknowledged that Microsoft is winning market share among businesses in general, but not in the target high-end business market.

"Microsoft makes a bunch of statements that are somewhat misleading in terms of what is happening," he said.

Mills also said during the interview that IBM expects to increase its unified communications revenue by 10 percent or more, year over year, for at least the next five years.

In its quiver of arrows against Microsoft, which Mills acknowledged is the company's chief competitor in this space, IBM also has the not-so-secret weapon of its massive IBM Global Services (IGS) organization to bring its unified communications infrastructure to customers.

Not only can IGS expose its customers to IBM's products, but it also will come in handy for integrating IBM's software with offerings from third parties, which executives said can be a complex task. IBM stressed the importance of third-party applications as part of its overall unified communications strategy and its competition with Microsoft.