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Can Ozzie Get His Groove Back?

By Faith Keenan When software whiz Ray Ozzie launches a new project, the entire tech world takes notice. In the early '90s, he created Lotus Notes, the first software that let people within one company collaborate over their desktop computers. It eventually spread throughout Corporate America, now claiming 85 million users.

In late 1997, Ozzie fans believed he would revolutionize computing again with the launch of Groove Networks. The idea this time was to build software that lets workers collaborate over the Internet with customers or partners in other companies in a wide range of new ways.

More than four years later, the hype has faded, and Groove is scurrying to grab a foothold in Net computing. Groove's software still aims to take the hassle out of teamwork between companies by allowing workers to share documents, talk, send messages, and doodle together in cyberspace. But customers say early versions of the software have been buggy. And while Groove struggled to fix the glitches, scrappy rivals with simpler solutions stepped into the breach and grabbed an early lead in the market for Net-collaboration software.

EARLY SHORTCOMINGS. Groove's goods needed plenty of fixing. Early users gave plenty of lip to Ozzie and his 100-odd developers. Security-conscious technology managers complained that early versions didn't let them control access to the software, instead letting individuals download the tool and bypass network administrators. Other customers groaned that Groove didn't work smoothly with Microsoft Office documents, which most of them use.

Users also wanted to be able to edit documents together and send only the changes, rather than the whole file. "We ended up duplicating a lot of information on individual computers," says Keith Cromack, vice-president for electronic communications at defense contractor Raytheon. The company tested Groove but hasn't signed on as a customer.

Now, Ozzie is hoping to find his groove with a new version of the software. Slated for an Apr. 15 release, Ozzie & Co. hopes Version 2.0 will deliver the goods and convince customers that Groove will help realize the promise of intercompany collaboration. Says Ozzie: "We've learned now what's important to concentrate on and what's at the fringe."

POSITIVE PREVIEWS. Among major improvements, the new version will allow better integration with Microsoft programs, says Ozzie. For instance, if someone is working in the Outlook e-mail program, a button will allow them to move to a Groove space and work in more depth. The new release also includes a tool for the simultaneous editing of documents, which wasn't possible before. And it will resolve management and security concerns by allowing technology managers to run Groove and link it with existing systems.

So far, the early previews are positive. Robert Batchelder, an analyst at Gartner who has been briefed on the new version, calls it a huge improvement. "What they've learned," he says, "is that you have to put in a bunch more stuff to make it friendly to the enterprise."

At least one customer agrees. Craig Samuel, chief knowledge officer of Compaq Global Services, which provided feedback on the first version, calls 2.0 "a big step forward." After cutting project time by 75% using Groove, Compaq recently signed an agreement to buy thousands of Groove software licenses. Says Samuel: "This is going to be as revolutionary as Notes."

COMPETITORS CREEP UP. Groove still faces human challenges. Some corporate technology officers say it'll take lots of conditioning to bring about the cultural shift needed for workers to adopt collaboration tools like Groove. "Asynchronous collaboration is too hard, even with good technology," says John Parkinson, vice-president and chief technologist of Cap Gemini Ernst & Young.

Parkinson recounts how a 15-member CGEY team that planned to meet in cyberspace every Friday had a hard time making it work. Often, members were traveling, which meant that they couldn't log on when others were online or hadn't been able to download updates posted on Groove in time for a meeting. "We don't get enough uplift from Groove for it to be habitually used by participants," he says. But Parkinson hasn't given up. Instead, he's trying to figure out other ways to use the software.

As Ozzie and his team toiled, other companies stole a march on the market. Rival programs from Opentext, eRoom, and Lotus Quickplace all offer online rooms where users can share documents. Taken together, the trio accounted for more than half of the $256 million market for team-collaboration solutions in 2001, according to IDC. About 25 companies are vying for the rest of the market, which IDC projects will grow to $843 million by 2006.

MICROSOFT'S MUSCLE. Groove had less than $5 million in revenue in 2001. Though it has more than 25 customers, most are still testing the product. Only GlaxoSmithKline, Dell Computer, and Veridian, a tech-services company in Arlington, Va., have signed on for 10,000 seats each at $49 a pop. (Soon the company will market two Groove versions, one for $49 and the second with more functions -- like project management -- for $99 a seat. Three servers to help manage access and relay information sell for a combined $40,000.)

Groove won an important vote of confidence late last year. In October, Microsoft announced that it was investing $51 million for 19.4% of Groove. The software giant is betting that the investment will help grease the inner workings of its own Internet strategy, called .Net. "Microsoft's hope is that developers will use what Groove has developed to build new services for .Net," says IDC analyst Robert Mahowald.

For Groove, the investment offers many benefits. For starters, the cash infusion has assured customers that the company isn't about to fold, and -- more important -- that Groove will mesh with Microsoft software. A new head of Groove's business development will focus on working with Microsoft's sales team. Analysts think the more focused push will help Groove begin to take share from current leaders.

SOPHOMORE SLUMP? "I don't see [competitors] as a threat to Groove," says Gartner's Batchelder, who adds: "I see Groove as a threat to them." He estimates that the Microsoft infusion will carry Groove for 18 months and sees the company booking revenue this year of between $10 million and $20 million.

Whether Ozzie can avoid the software developer's sophomore curse and hit another home run remains to be seen. Customers such as Compaq still aren't satisfied. They expect future versions to boost the software's speed, manage workflow more easily, and work with handheld computing devices. In Ozzie's defense, supporters point out that it took years for Lotus Notes to take off. Though product-cycle times are faster today, four-plus years in the oven could turn out to be just the right timing for Groove. Keenan covers technology for BusinessWeek in Boston

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