In January of 2006 when Microsoft announced that it was merging its Exchange Server and Real-Time Collaborations groups to form the Unified Communications Group (UCG), it sent an important message to the market - Microsoft is serious about communications.  When Microsoft is serious about a market, it leverages every asset in its arsenal – as evidenced by the MSN and Xbox examples.  Microsoft has spent billions of dollars, flexed its marketing muscles and made important acquisitions to enter these markets.  Microsoft is doing the same with UCG, with billions of dollars spent in product and market development, plus a number of acquisitions, including PlaceWare, mediastreams, Groove, TellMe, and Parlano. And Microsoft has certainly been flexing its marketing muscle.

Microsoft often uses the Henry Ford analogy to describe its entry into the UC market -- "if I'd asked people what they wanted, they’d have said a faster horse." Microsoft clearly isn't trying to develop a faster/better PBX - it’s trying to develop a new communications/collaboration solution, including services that can replace a PBX.  Even before Microsoft unveiled its unified communications product roadmap in June 2006, the company was saying that enterprise customers may not need another PBX.  Microsoft's strategy in this area appears to have evolved over time.

The media-streams.com acquisition gave Microsoft the foundation to add call control capabilities to OCS 2007, although with limited PBX features.  Despite the limited number of PBX features, Microsoft claims that its rich communications/collaboration solution will satisfy the needs of most customers. This is reminiscent of Cisco after it acquired Selsius 1998.  Cisco’s initial IP PBX offering had limited PBX features, and the market told Cisco in no uncertain terms that they required many of those features.  Cisco subsequently spent the next five years adding the required features. Similar to Cisco, Microsoft listened to the market, and at VoiceCon last March announced an initiative to allow telephony vendors to integrate with Office Communications Server 2007. Microsoft will also be adding additional PBX features with each new OCS release/upgrade.

This is in line with what I refer to as Microsoft's Trojan Horse strategy (click here for a link to the UC eWeekly article) where Microsoft partners with the PBX/IP PBX vendors in order to propel OCS into the enterprise based on its IM and presence capabilities.  In three-to-five years, once Microsoft has all the PBX features a customer requires enterprise customers who need to replace their switches will have no need to buy another PBX and instead can use their OCS system for call control.

Customers are demanding that the PBX vendors, including Cisco, interoperate with Microsoft's OCS, putting the PBX vendors in an awkward position.  While supporting OCS in the short-term, they may inadvertently be providing their customers with their next PBX.  Read more about this in part 2 of this series which will appear in the December 12, 2007 edition of the VoiceCon Unified Communications eWeekly.

Microsoft's goal is to dominate the unified communications market.  The company has a compelling story as well as support from a wide variety of customers that would indicate that the products are just as compelling.  But if Microsoft is going to dominate this market, it needs to have a "seat at the table" when enterprises are upgrading or acquiring a new IP PBX.  It is unlikely Microsoft will have this opportunity until it offers all of the features enterprise customers expect from a PBX replacement - even if that replacement is a next-generation communications system.

Microsoft must make a strategic decision at this point.  It can hope to be in a position to dominate the market in three-to-five years when it has all the features enterprise customers are looking for (aka the Trojan Horse strategy).  Or, it can get a "seat at the table" by acquiring a company that is always invited to the table -- a major PBX vendor.

This strategy may not be as farfetched as it seems.  It has been rumored for some time that Microsoft had serious acquisition discussions with Avaya, although there were two major impediments to the deal -- a union workforce and pension fund liabilities.

So who are the likely acquisition candidates?  Here are my thoughts:

Avaya -- When Avaya announced it was going private, I determined that it may be able to overcome the impediments rumored to have prevented a Microsoft acquisition.  If this is possible, they could be at the top of Microsoft's list.

Nortel Enterprise– Nortel has benefited greatly from its relationship with Microsoft, but if the Avaya acquisition rumors are true, then Nortel was Microsoft’s second choice.  Microsoft has been working very closely with Nortel for over a year.  This may help to move to the number one spot Microsoft's list. 

Siemens Enterprise -- Before Microsoft and Nortel announced their strategic alliance, Siemens appeared to be Microsoft's favored telephony partner. This relationship is not as strong as it once was, however.  It is publicly known that Siemens is available for acquisition, most likely for a very reasonable price.  Siemens would probably be a distant third on Microsoft's acquisition list.

NEC -- While NEC is now the leading PBX vendor in the world, there are probably a number of cultural challenges that would make this a difficult acquisition for Microsoft.

Mitel – Mitel has probably been Microsoft's best telecommunications supporter over the years. Mitel’s market share is too small to provide Microsoft with what it would be looking for in an acquisition.

Microsoft’s recent activities have changed our industry for the good, and the company is positioned to be a market leader with or without the acquisition of an IP PBX vendor.  But if Microsoft, being an extremely aggressive and competitive company, thought it could improve its chances of dominating the unified communications market by acquiring a major PBX vendor, then it will most likely do so.

Look for part 2 of this series which will appear in the December 12, 2007 edition of the VoiceCon Unified Communications eWeekly where I will discuss what PBX vendors should consider if Microsoft were to make a PBX acquisition.

Part three of this series will appear on no jitter.com a new website from CMP supported by our friends at BCR.