Analysts: Microsofts VOIP Move Is Only Natural

They say it's a "natural progression" for Microsoft to jump into the VOIP space with its Live Communications Server 2005-and to partner with VOIP vendors and carriers as it gets its feet wet.

Microsoft is expected to release its latest enterprise instant messaging server, Live Communications Server 2005, later this month, and industry analysts suggest that its enhanced capabilities signal a concerted and not entirely surprising effort to move into the telephony and VOIP (voice over IP) market.

"They want to go into a new market where they havent played before," said Laura DiDio, a senior analyst with The Yankee Group, based in Boston. "Its a new vista for them, and were seeing that the traditional datacom, telco and software markets are getting to a blurry point of indistinction."

/zimages/3/28571.gifIs Microsoft really moving into VOIP with its Live Communications Server? Click here for more on what sources are saying.

DiDio said she sees the moves as a natural progression for Microsoft, and that she sees LCS 2005 as part of a larger initiative—.NET. "This all tracks back to what theyve been talking about since two months after Windows 2000 shipped," she said.

Other analysts agree, and theyre quick to point out that Microsoft initially wont want to compete with the VOIP carriers or traditional hardware vendors, but rather on applications and functionality.

"Its the higher-layer services and applications like IM [instant messaging], voice and data that is enabled by VOIP and those protocols [that Microsoft will focus on]," said Tom Valovic, program director of VOIP infrastructure at IDC (International Data Corp.) in Framingham, Mass.

And thats where improvements to LCS should bolster Microsoft. Microsoft says LCS 2005 will offer improved security and usability, as well as a "presence engine" that enables communications and location information to be exchanged between devices and users.

Its also the first time its gone outside the firewall, allowing secure communications between partners, customers and employees. In addition, its built on SIP (Session Initiation Protocol), which could enable expansion to voice and video communications.

Peter Pawlack, lead analyst for server applications at Directions on Microsoft, an independent analyst firm in Kirkland, Wash., said it is rumored that a new communications client, code-named "Istanbul," will be timed for release with LCS 2005 and could include integration with PC-based voice applications or have voice functionality itself.

"My guess is youll see all of that—multipoint video, audio, data, VOIP, presence, conferencing—converge into an integrated line of services from Microsoft," Pawlack said. He and DiDio both said that for anything Microsoft hasnt developed itself, it will sign on with partners to complete the package.

Pawlack cited last months agreement with Polycom, a conferencing technology vendor, as one example.

/zimages/3/28571.gifClick here for a column from the VOIP perspective on what Microsoft might have up its sleeve.

Pawlack also said Microsoft at some point will likely try to establish partnerships with VOIP vendors and carriers, who would then use LCS as one of their core components or offerings.

"If theyre successful at that, it could jack sales numbers up by many orders of magnitude," he said.

Along those lines, DiDio at The Yankee Group said Microsoft has inked "wide-ranging pacts" with as many as 1,700 telcos around the world over the past 18 months. And while noting that the agreements clearly are not all major, they are "indicative of how seriously Microsoft views this market," she said.

That means voice-transport vendors arent off the hook yet.

"Its pretty clear they wont immediately go head-to-head with some of these vendors, but there are directions that VOIP could take where Microsoft might be able to play a much stronger role," IDCs Valovic said.

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