There's no doubt that Microsoft could enter the IP telephony market. But why would the software giant want to enter an area so foreign to its core business? Well, the answer is IP telephony is moving toward a Microsoft business model. In short, IP telephony will be a software- and services-based industry, exactly what Microsoft serves. If Cisco Systems wins when communication sectors change to IP, Microsoft wins when large markets move toward software and services.
For starters, Microsoft could release a softphone that is tightly linked to Outlook, Live Meeting, NetMeeting and its other office productivity software packages. Microsoft could change course and close the Outlook API it has offered to Cisco, Avaya, Nortel Networks and others, leaving these firms with a second-rate softphone that does not connect to a Microsoft world. You might ask, is a softphone that important? You bet. Many large corporations are moving away from fixed analog, digital and even IP phones to smart phones and softphones over the next few years. British Petroleum plans to change out its 150,000 fixed phones to nearly all softphones and smart phones by 2008.
Microsoft offering a built-in softphone would be a huge blow to IP telephony firms, whose revenue comes largely from fixed IP phones and, increasingly, software licenses. Microsoft has embraced Session Initiation Protocol on the endpoint by bundling a SIP client into XP. Most IP telephony firms give SIP lip service by promising SIP but loading up the stack with proprietary extensions that deliver more feature-rich services, locking customers into their IP telephony architecture. If Microsoft were to offer a SIP-based softphone, it would be a cataclysmic change agent forcing a new organizing principle on the IP telephony industry. All the IP telephony providers would have to change their business models, invariably with some not being able to do so successfully.
Those softphones need a connection manager or SIP proxy to provide connection/call services. It's not a leap of faith to see Microsoft adding connection manager functionality into its live communications server. Alternatively, the increasing shift toward hosted IP telephony services, which moves the connection manager function into a service provider, could reduce the urgency for Microsoft to build or acquire its own. Instead, Microsoft could simply focus on its softphone and connect to every other connection manager on the market. This would let Microsoft own both the softphone and, more importantly, the suite of IP communication applications.
It's inevitable that Microsoft will enter the IP telephony market at some level. Next year should be a good time for the company to make its move -- projections show 2005 will be the year IP telephony deployments start to enter the "hockey stick" inflection point. In any event, Microsoft jumping into IP telephony surely will change the market.
Lippis is an authority on corporate IP communications and consultant to CXOs of Global 2000 companies. His Enterprise IP Communications Symposium is being held in Atlanta this week.