Microsoft's Salesforce.com Lawsuit Overshadows Hotmail Update

Microsoft's week centered on filing a lawsuit against Salesforce.com over alleged patent infringement, an action that some analysts thought indicative of a broader strategy. That lawsuit came as Microsoft arranged a $200 million out-of-court settlement with VirnetX over intellectual property issues. Also on the Web-based side of things, Microsoft announced a wide-ranging update to Hotmail, including new features for clutter-reduction and spam elimination, designed to help the e-mail service better compete against Google's Gmail and other rivals.

Microsoft's legal activities dominated its week, particularly its filing of an intellectual property suit against Salesforce.com May 18, alleging infringement on nine of its patents. Microsoft may have publicly cast that action as a standard-issue patent-infringement case-a relatively regular occurrence in the tech world-but many analysts suggested a larger strategy at work.

The amount of damages claimed by the suit remains unspecified, but the cited patents cover very specific areas, including "Method and system for mapping between logical data and physical data," "Method and system for stacking tool bars in a computer display" and "System and method for providing and displaying a Web page having an embedded menu."

Much of Microsoft's legacy continues to be bound onto the desktop and hybrid solutions. Salesforce, however, has aggressively pushed cloud-based platforms as the way of the future-putting it on a collision course with Microsoft as the software giant explores a strategy in the same area. Salesforce's recent push to attract developers would also put it at odds with Redmond, which has been pushing application development using its .NET framework.

"Microsoft has been a leader and innovator in the software industry for decades and continues to invest billions of dollars each year in bringing great software products and services to market," Horacio Gutierrez, Microsoft's corporate vice president and deputy general counsel of Intellectual Property and Licensing, wrote in a May 18 statement. "We have a responsibility to our customers, partners and shareholders to safeguard that investment, and therefore cannot stand idly by when others infringe on our IP rights."

But analysts theorized about other motives at work.

"It may be there's a tactical angle to this-where Microsoft puts a stick in Salesforce's spokes," Roger Kay, an analyst with Endpoint Technologies Associates, told eWEEK in an interview. "But I don't think Microsoft's motive here was, -Hey, how can we mess these guys up?'"

Instead, Kay suggested, Microsoft may be seeking to "monetize" its large patent portfolio: "It doesn't seem as if Microsoft is challenging the core intellectual property of Salesforce. It's really about Microsoft having looked over Salesforce's operations and seen some pieces of plumbing that looked like it could belong to them."

Others thought the lawsuit had broader motives.

"Microsoft considers these to be core patents, ideas that differentiate Microsoft's offerings broadly," Rob Enderle, principal analyst of the Enderle Group, wrote in an e-mail to eWEEK. "They won't license these and approached Salesforce and Salesforce evidently [blew] them off, likely thinking that Microsoft wouldn't litigate because they rarely do."

However, Enderle said, Microsoft could choose to make an example of Salesforce, if only to show that its litigation department has teeth: "Microsoft's investment in this effort will be significant. They've been doing this for decades."

The Salesforce lawsuit comes at a time when Microsoft already finds itself embroiled in legal action. On May 17, Microsoft announced that it would pay $200 million to settle a patent-infringement suit leveled against it by VirnetX, which builds communication and collaboration technologies. That follows a March verdict where a Texas jury found that Microsoft had infringed on two U.S. patents held by VirnetX, and ordered the software giant to pay $105.7 million.

Microsoft's other big news of the week involved the cloud, but in a far more different context.

On May 18, Microsoft announced sweeping updates to Hotmail, designed to keep the service competitive with rivals such as Google's Gmail. The changes include a variety of clutter-elimination and security tools, and allow users to leverage a Windows Live account to provide not only contacts from Hotmail itself, but also Windows Live Messenger, Facebook and MySpace.

Inevitable, the "new" Hotmail emphasizes its mobile aspect, with e-mail synchronization between a smartphone and the Web. Partners including Nokia and Research In Motion have been developing custom Hotmail apps that will run on their respective devices.

New Hotmail features include the ability to send-via link-up to 200 photos of up to 50MB in size at one time, for a total of 10 gigabytes of snapshots in a single image, and "Microsoft SmartScreen," which attempts to distinguish between legitimate e-mail and spam. Also included are one-click filters to parse out certain types of e-mail, such as those sent from social networks such as Facebook; Conversation View, which displays a long e-mail chain in a single page; and InBox Search Auto-Complete, which suggests possible searches in response to typing letters into the search box.

The revamp also extends to Hotmail's productivity aspects, with a new feature that matches Gmail's ability to view documents in the browser.

"With the new Hotmail, you can attach an Office document to an e-mail and have it stored on [Windows Live] SkyDrive," Dick Craddock, group program manager for Windows Live Hotmail, wrote in a May 17 posting on The Windows Blog. "Hotmail then sends the document via SkyDrive so that you-and the people you send it to-can access it from anywhere regardless of whether they use a PC or a Mac, have Office installed, use Hotmail or don't, or have smaller attachment limitations than the 10GB per message allowed by Hotmail." 

Hotmail represents just one of the Web-based properties revamped by Microsoft over the past few months. On May 13, the company launched a redesign of MSN Mobile, with aesthetics mimicking the revamped MSN homepage launched in March. In April, Microsoft also unveiled the new version of Windows Live Messenger, which bundles a variety of social-networking services into the user's message stream.

Whether Microsoft can face down Salesforce, and continue to hold its lead in e-mail services with the new Hotmail, the company did receive one bit of news this week likely to cheer hearts in Redmond: On the newest American Customer Satisfaction Index, released on May 18, Microsoft scored a 76 out of a possible 100-matching the ACSI's industry average for software companies, but also representing a rise from 2007 and 2008, when that score sunk to 70 and then 69.

"After consumers struggled with its Windows Vista software, Microsoft's release of the Windows 7 upgrade in the fall of 2009 came as a breath of fresh air," reads a May 18 press release issued by ACSI along with the study. "Microsoft has parlayed high volume sales of a higher quality product into a big boost in customer satisfaction."