Update: Microsoft's Groove buy has ramifications for Longhorn

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."