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Microsoft to buy Groove Networks

/ Source: The Associated Press

Microsoft Corp. is acquiring Groove Networks Inc., whose category-leading software helps far-flung business people collaborate, and bestowing the title of chief technical officer on Groove’s founder and chief executive, Ray Ozzie.

Ozzie, a highly respected software veteran and co-creator of Lotus Notes, will report directly to Bill Gates, Microsoft’s chairman and chief software architect.

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The acquisition, announced Thursday, is a logical step for the world’s largest software maker as it tries to extend its Office brand in an increasingly mobile business world, where projects are frequently handed off from time zone to time zone.

Major Groove customers include Boeing Co., ChevronTexaco Corp. and Harvard Medical School and various U.S. government agencies.

In addition to bolstering the Office product lineup, Groove’s technology could also eventually find its way into such Microsoft products as the next generation of Windows operating systems, company executives said.

Microsoft and privately held Groove did not disclose financial terms of the deal. The companies have worked closely for years, with Microsoft twice investing an undisclosed amount of money in Groove.

In a conference call, Gates praised Ozzie as a huge contributor to the evolution of Windows, providing the company with substantial feedback over many years.

“I’ve thought about, ’Could we ever hire Ray and his team?’ for a long, long time, so it’s a big day for me that that’s finally taking place,” Gates said.

Nate Root, a vice president with Forrester Research, called the deal very good, if not unexpected news, for Microsoft.

The company’s market-leading Office line remains a key cash cow for the company, having brought in $2.78 billion in revenue in the quarter ended Dec. 31 alone. But the company itself has conceded that it is getting harder to sell businesses on new versions of its Outlook e-mail, Word and Excel spreadsheet applications, so it has increasingly looked for ways to extend the brand.

Those fledgling efforts include introducing Web conferencing products and getting into the market for corporate instant messaging.

“They’re struggling with trying to make people see Office not just as a way to write documents and send e-mail, but to work together in groups,” said Rob Helm, director of research with independent analysts Directions on Microsoft.

Helm said Groove’s technology could provide a big boost to that effort, but he cautioned that it could take some work for the smaller company’s product to be adapted for the large array of businesses Microsoft is likely aiming for.

That could include adding more corporate controls on how information is shared, Helm said.

“I think Groove is going to have to grow up,” he said.

Founded in 1997, Beverly, Mass.-based Groove employs about 200 people, who will remain there after the acquisition. The deal is expected to be completed by the end of June.

Groove makes software so workers can collaborate remotely through “virtual offices”. One reason the software is popular is because a user doesn’t always need to be online for it to work.

The software is a central component in the Bush administration’s Homeland Security Information Network, a primary vehicle for U.S. agencies, organizations and corporations to share important but unclassified information about national security threats.

Other companies use the product to share documents, coordinate business deals and communicate with one another even when workers are on the road or in various offices throughout the world.

Ozzie will become one of three chief technical officers, focusing on communication and collaboration technology throughout the company’s product lines. The other two CTOs are Craig Mundie, who focuses on global business strategies, and David Vaskevitch, who is charged with looking at future Microsoft platforms.

Root said Ozzie also could aid Microsoft’s overall efforts to be successful in a world where more people want access to all their data no matter where they are.

“Ray Ozzie is not a shy person. He’s not someone who’s afraid to shake things up,” Root said.
Microsoft has had a spotty record in keeping high-level executives who came from outside the company, but analysts said Gates’ clear admiration for Ozzie may help make this partnership more successful.

In an interview, Ozzie said there are trade-offs to leaving his own company to join such a large one, but the move would give him a bigger audience for his ideas.

“The great thing about a small company is that you can put a lot of effort into one thing, but you can have limited impact,” he said. “In a larger role, I’ll have probably have less focused impact across a broader range of things.”

Ozzie will maintain his base in Massachusetts but plans to travel frequently to Redmond.
Jeff Raikes, group vice president in charge of Microsoft’s Office division, said no layoffs are expected and any workers in redundant jobs will be given the option of finding another Microsoft position.

Raikes said the company also may expand its presence in Beverly, north of Boston, to do work such as offering Groove’s technology in other languages.