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Friday, March 11, 2005 - Page updated at 12:00 a.m.

Groove gives lift to Microsoft Office

Seattle Times technology reporter

Enlarge this photoSTEVEN SENNE / AP

Ray Ozzie, founder of Groove Networks, at the company's headquarters in Beverly, Mass. The purchase of Groove makes Ozzie one of three chief technical officers at Microsoft.

Microsoft is buying privately held Groove Networks to extend its leadership in "information worker" software, company executives announced yesterday.

The deal is also giving Microsoft a well-known software pioneer, a beachhead in the Boston technology corridor and high-profile government contracts that may improve Microsoft's security reputation.

Groove makes collaboration tools using Napsterlike file-sharing technology. The tools allow workers to simultaneously work on documents from different locations; the software synchronizes the material so workers don't have to pass it back and forth as changes are made.

Analysts don't expect the deal to have much effect on Microsoft's earnings, but the company is getting a set of unique and potentially valuable assets.

Groove founder Ray Ozzie, an industry pioneer who developed IBM's Lotus Notes, will become one of three chief technical officers at Microsoft and work with Chairman Bill Gates on new communication and collaboration technologies.

In a conference call to announce the deal, Gates said he has long wanted to hire Ozzie, 49.

Groove Networks


Headquarters: Beverly, Mass.

Founded: 1997

Chairman and CEO: Ray Ozzie

Employees: About 200

Financing: More than $155 million from investors, including Microsoft, Intel Capital and Accel Partners

What it does: Develops software that handles collaboration over networks

"I think Ray's always assembled teams that do an amazing job of thinking through what it is that workers need, then building the technology that can come together in a simple way to help people be more productive," he said.

Groove's products and expertise will also help Microsoft create products for the new world of business, where office tasks are often done outside the office, and workers need new collaboration tools, said Jeff Raikes, group vice president of Microsoft's information-worker division.

"We believe that by going forward with this merger it really will help us realize our shared vision much more quickly," he said.

Groove products would become part of Microsoft's Office line of products after the deal closes in the second quarter.

Microsoft was already a major investor. It contributed more than $50 million of Groove's $155 million funding. Sale terms weren't disclosed.

Despite Ozzie's association with Notes and IBM, Groove products are closely linked to Microsoft's. Programmers working with Groove use Microsoft's software tool kit, and Groove's software runs on Windows PCs.

Groove also works on networks with both Microsoft and non-Microsoft equipment. Gates said its ability to integrate into existing networks is "one thing we're really excited about."

The merger seemed to be well received by companies developing and selling Groove-based products, said Andy Swarbrick, chief executive of PopG, a Groove partner in Oxford, England.

"Only time will tell, but I feel it has a good chance of actually really exciting the whole Groove marketplace," he said.

Groove, which employs about 200 people and started in 1997, will stay in Beverly, Mass., giving Microsoft its first development center in the region. Ozzie won't relocate but he'll serve on Microsoft's leadership team.

The acquisition is the latest in a multiyear effort by Microsoft to add more communication and collaboration features to Office and broaden the product into a broad software platform like Windows. In addition to software applications, it now includes services, servers and programming tools, and it is cultivating a developer network.

Some analysts said Groove never fully lived up to its early hype but still won contracts with huge corporate and government customers.

Key assets include a military-grade security approval and contracts with the departments of Defense and Homeland Security. That approval is "fairly unique in the world of software," said Steven Sinofsky, senior vice president of Microsoft Office. "It's one of the assets that Groove really brings to bear."

The Homeland Security deal, announced last month, could eventually put Groove technology in computers used by police across the country, said David Scult, Groove president and chief operating officer.

One government project was a factor in the departure of an early Groove supporter. Lotus co-founder Mitch Kapor quit the Groove board in 2003, in part because of his objections to a federal monitoring system (later rejected by Congress) that Groove was involved with.

Kapor, now a leader in the open-source software movement, remained a shareholder and agreed to the Microsoft deal after Ozzie explained his reasoning — that Microsoft's offer was the best course to maintaining jobs in Massachusetts while allowing Groove to continue realizing its "bigger vision."

Kapor said Groove doesn't give Microsoft a lock on the market.

"Groove has had some significant adoption but, really, not in a mainstream kind of way," he said. "Most of the potential for collaboration has yet to be realized so I don't think anybody owns that or is even ahead."

Where Groove leads is in areas with little to no Internet connectivity, he said. That has given Groove customers such as the U.S. Army and disaster-relief organizations. Personnel can use the software to work on documents in the field, and their work automatically synchronizes with others whenever they reach a network connection.

But Groove has lately been "invisible," said Drew Brosseau, an analyst with S.G. Cowen in Boston.

"They were a hotter story about four years or five years ago than they are now," he said.

Brier Dudley: 206-515-5687 or bdudley@seattletimes.com

Copyright © 2005 The Seattle Times Company


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