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Combat Over Collaboration


Starkey Laboratories Inc. is known for its high-end hearing aids, but until recently the process that engineers at the Eden Prairie (Minn.) company used to design them was decidedly low-end. They would cook up a design concept and then e-mail it to colleagues so they could make changes. But because multiple copies of each design were circulating, there was a lot of confusion about which version was the most up-to-date.

Rather than wait for Starkey's tech department to deliver a solution, a group of frustrated engineers took matters into their own hands. They used Microsoft Corp. (MSFT) software to covertly set up an internal Web site for collaboration. They were able to go online to set common goals and deadlines, and to maintain one version of a design for their project that anyone could modify. "It immediately increased productivity," says Timothy D. Trine, vice-president for hearing research and technology. Starkey now has 450 collaboration Web sites for various projects.

KEY SOURCE FOR GROWTH

If Microsoft gets its way, software that lets workers like those at Starkey collaborate anytime and anywhere is finally going to reach the masses. The tech giant is making collaboration one of its top priorities, ratcheting up the competition in one of the most dynamic segments of the software industry. "There's certainly this gigantic opportunity in making workers more productive," says Microsoft Chairman William H. Gates III.

The company's goal is to make the software as easy to use as Word, Excel, or Outlook -- the core programs in its Office application suite. Microsoft itself has spent more than $300 million on two startups and billions more on developing collaboration technologies. On Mar. 15 it began a $100 million Office ad campaign. And by the end of June it will launch Office Communicator 2005, a program designed to make it far easier for workers to initiate everything from an instant messaging dialogue to a phone call to a video chat session -- all from one application.

Microsoft is going head-to-head with another software giant: IBM (IBM). Big Blue's Lotus Notes software pioneered the collaboration market and now has 118 million users. Last year, IBM began rolling out a new package of applications, called Workplace, that combines collaboration capabilities with the programs workers use to do their jobs every day. Says Steven A. Mills, IBM's executive vice-president for software: "Our game plan here is to be a major player in this next generation."

Both companies see collaboration as a vital source of revenue growth. The $4.4 billion market, the largest part of which is e-mail, is expected to climb at a respectable 8% this year, vs. 6% growth for all software. The hottest niches -- Web conferencing, corporate instant messaging, and team collaboration Web sites -- will grow 27% this year, to $1.8 billion, estimates tech research firm IDC.

Microsoft's latest move is a direct challenge to IBM. In March, it agreed to pay $120 million for Groove Networks Inc., run by Lotus Notes creator and former IBM star Ray Ozzie. Groove uses peer-to-peer technology -- the stuff teenagers use to illegally swap music files -- to let workers at different companies easily collaborate on projects through corporate firewalls. IBM doesn't offer a rival technology. "This is a kick in the gut to IBM," says Erica Rugullies, senior analyst at research firm Forrester Research Inc. (FORR)

Even before the Groove deal, Microsoft was gaining the upper hand. In 2003 it bought PlaceWare Inc., the No. 2 player in Web conferencing behind WebEx Communications Inc. (WEBX) Analysts believe Microsoft has been growing faster than No. 3 IBM since. Its big advantage is being able to capitalize on its installed base of 400 million Office users by placing easy-to-use links from those applications to its new collaboration software and services. That helped it increase its number of Web conferencing customers 41% since the PlaceWare acquisition. "Microsoft can push these products and get them in front of users," says IDC analyst Robert P. Mahowald.

But IBM will be a worthy rival -- especially in large organizations. Its Workplace melds such desktop programs as word processor and spreadsheet with collaboration software and promises to make it all less expensive and easier to manage than typical desktop computing setups. San Francisco State University, for instance, plans to use Workplace when it's rolled out early next year to give all 32,000 students and faculty the ability to search class information, dig through research documents, and collaborate with one another. "The idea is to really have an electronic campus," says Jonathan Rood, associate vice-president for the university's division of information technology.

While customers are kicking the tires, Microsoft and IBM are kicking each other. Gates dismisses IBM as a serious competitor since so many of its desktop programs, such as the Lotus 1-2-3 spreadsheet, are afterthoughts in today's market. "It's hard for a company that has been out of it for so long and had the various failures they've had to wake up and say, 'We care about information workers."' he says. To Mills, it is Microsoft that is stuck in the past. "Their world is the world of e-mail, not the world of collaboration," he says. Their verbal salvos don't mean much, but as long as they back their talk with innovative new products, customers such as Starkey Labs and San Francisco State will be the real winners.

By Jay Greene in Redmond, Wash.


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