Update: Microsoft's Groove buy has ramifications for Longhorn

Deal raises questions about how Groove's collaboration software will fit in with Microsoft's upcoming releases

Hoping to boost its collaboration software strategy, Microsoft on Thursday announced its intention to acquire Groove Networks, naming Groove founder Ray Ozzie a CTO of the company.

The deal calls for Microsoft to add Groove's products into Microsoft's Office System lineup of products and services, along with bringing over Groove's core management and development team. Ozzie, the creator of Lotus Notes, will report directly to Microsoft Chairman and Chief Software Architect Bill Gates.

Once the deal is approved, which is expected to be done by June, Groove will become part of Microsoft's Information Worker Business unit and will continue to be based out of its Beverly, Mass., headquarters. Company officials declined to disclose the financial terms of the deal.

Some analysts said they had been expecting the acquisition for some time and generally think it makes strategic sense for both companies.

"Microsoft and Groove have been outstanding partners. Microsoft has been able to kick a lot of business Groove's way because Groove fills in a gap that Microsoft does not have any technology in, the offline collaboration market. It is a smart move," said Nate Root, a vice president at Forrester Research. "The one downside is, it might be a smart move that is happening a little later than what would have been ideal," he added.

What Root is referring to in terms of the move "happening a little later than would have been ideal" is that it would appear difficult for both companies to integrate its complementary technology into two critical releases scheduled for late 2006, namely the long-awaited follow up to Windows XP, code-named Longhorn, and the next version of Office, which is designed to fully exploit Longhorn.

"Microsoft has two big releases coming next year in Longhorn and Office 12, which are radically different from their predecessors. They both have millions of lines of code, hundreds of developers, and programming teams well into their development phases. It is going to be hard to take a step back and stitch new technology and strategies into those products," said Root.

While Microsoft executives declined to a roadmap for what and when they might integrate Groove with any of its collaboration products, Gates, in a late morning press conference on Thursday, said Microsoft will be looking to stitch in several of Groove's capabilities to Longhorn.

"We will bring together the peer-to-peer and authentication capabilities Groove has built into their application with the equivalent things we have been incubating at Microsoft to strengthen the platform. Clearly, a big thing with Longhorn is its peer-to-peer capabilities, and Groove will help us pull that together," Gates said. "Groove has some fantastic and unique features we want to fit into the entire Office offering," Gates added.

Integrating Groove should enhance Microsoft's Office System strategy on the desktop, one of the company's largest revenues generators, although again officials declined to say how and when.

By combining Groove in with its existing collaboration products including Office, SharePoint server products, and Live Meeting Server, Microsoft officials believe they have achieved a collaboration "trifecta."

"The combination of real time server based and peer-to-peer communications will clearly be a significant enhancement, so you can expect that as part of our product planning for the next major wave. We are expecting to use it very broadly," said Jeff Raikes, group vice president in charge of Microsoft's Information Worker Business unit.

Currently Microsoft has Office SharePoint Portal Server line and Windows SharePoint Services that allow IT shops to create and manage shared spaces for groups of information workers within an IT-based network. Just this past week the company introduced Office Live Communications Server and Microsoft Office Live Meeting that together reportedly offer a unified communications infrastructure for information workers.

Groove's Virtual Office helps users across an enterprise, or outside that enterprise, to work together over secure Internet connections. The product uses a peer-to-peer architecture that allows individual PCs to communicate directly with one another and to share documents or communicate via instant messaging.

"The PC has come to stand for the Personal Communicator, and so we have optimized Groove for a specific usage model that is very synergistic with how people use Office documents and tools on a day-to-day basis. This is why it is very important to view [Virtual Office] as part of the Office system of products," Ozzie said.

Gates said Ozzie will be on the company's Senior Leadership Team and will be helping to shape and influence many of the technical pieces of the company's collaboration strategy. Some observers agree that Ozzie's lofty position sends a signal that his role will be much more than that of shepherding the deal to completion followed by retirement.

"It looks like they want Ray to be around for the long haul to make some other paradigm changing inventions like Notes and Groove. You can imagine some pretty far out conversations over a cup of coffee or a beer between those two," Root said.