Microsoft Web-Call Unit Lures Boeing, France Telecom

Microsoft Corp. has lined up customers such as Boeing Co. and France Telecom SA for new software that handles Web-based calling and videoconferencing, advancing an effort that may add $1 billion in annual sales.

The software, called Lync, debuted at an event today, before going on sale Dec. 1. It has the potential to generate sales on par with Microsoft’s SharePoint business, which makes about $1.3 billion a year, Kurt DelBene, president of the Redmond, Washington-based company’s Office unit, said yesterday.

DelBene’s unit has revamped Web-calling and conferencing software to gain more of the $50 billion market for products that help companies replace traditional phone networks with systems that send communications over the Internet. The new software is a bid to parlay Microsoft’s personal-computer know- how in the networking realm dominated by Cisco Systems Inc.

“Microsoft had a very strong offering in all areas except the place where they were weakest: the telecom area,” said Bern Elliot, an analyst at Stamford, Connecticut-based Gartner Inc. “With this release, they’ve used their experience to improve that. Now, if you wanted to, you could get rid of your existing phones.”

It will take until the middle of next year to see whether Lync will be a serious contender, Elliot said. Lync is the third iteration of Microsoft’s software for Internet-based calling and teleconferencing, which was introduced in 2003.

Tracking Down Co-Workers

The idea is to put Internet messages, video chats and phone calls on the same platform -- a concept called unified communication -- and make it easier to reach people wherever they are.

For instance, if you call a co-worker’s office but he’s traveling, Lync will try the person in his hotel room in Kuala Lumpur, DelBene said. Microsoft Office users can right-click on contact names to call them. If they need a third person to join, they can drag and drop the name to create a conference call.

Royal Dutch Shell Plc has been using the previous versions of the software and plans to upgrade to the new one as part of its effort to switch out traditional phone systems, DelBene said. Other Lync customers include Estee Lauder Cos., Nikon Corp. and Marquette University, Microsoft said.

Hewlett-Packard Co., whose services business helps customers install Lync, has orders to deploy Lync to more than 300,000 workers at Fortune 500 companies, Microsoft said.

Microsoft fell 24 cents to $25.57 at 4 p.m. New York time in Nasdaq Stock Market trading. The shares have declined 16 percent this year.

Cisco Showdown

When Microsoft bids for customers, it often squares off with Cisco, International Business Machines Corp. and Avaya Inc., said Gurdeep Singh Pall, a Microsoft vice president.

Cisco’s unified-communications business, which has more than 1,000 customers, includes Internet phones and call-center products, as well as social-networking tools and mobile applications.

The unit, which posted revenue growth of 45 percent last quarter from a year earlier, counts the Abu Dhabi Police and Bulgarian Ministry of Transport as customers. It sold its 30 millionth Internet phone last month to HSBC Holdings Plc.

DelBene says he isn’t worried about the competition.

“I’m usually a person that is overly fixated on what could go wrong, but in this space I feel we’re the leaders,” he said. “There’s not a vendor I’m particularly worried about.”

Cisco built its technology by buying other companies, which may give Microsoft an edge, Gartner’s Elliot said.

“Cisco has all the pieces -- they don’t have as strong integration across the pieces,” he said.

Mix of Technologies

While Skype Technologies SA leads the market for consumer Internet calling, it isn’t as big a competitor in the corporate arena. Skype lacks the kind of tools many companies need for security and auditing purposes, Pall said.

Microsoft has replaced its own phones and conferencing services with its technology, resulting in $215 million in annual savings in the U.S., DelBene said. For now, many customers are using the software alongside traditional phones. Eventually, they’ll phase out the older approach, he said.

Besides linking up with Office software, the program can be embedded in a company’s other applications. For example, Schlumberger Ltd., the world’s largest oilfield-services contractor, integrated the software with its programs for monitoring oil rigs. That lets the company quickly call staff on the affected rig if it notices a problem, Pall said.

Dark Ages

The software stems from more than seven years of work, beginning with a group assembled by Chairman Bill Gates. The team included Pall and Gates’s former technical assistant, Anoop Gupta, who ran the business before Pall.

Gates was interested because he felt the telecommunications industry was stuck in the Dark Ages, instead of being transformed by the PC and the Internet, Pall said. Microsoft came close to buying a large business in the telecommunications field in order to jump-start its efforts, he said.

The company discarded that plan in 2005 to focus on building its own software, Pall said. He declined to say which company Microsoft came close to buying.

“We started building this platform six years ago,” Pall said. “It takes a long time to build it right.”

To contact the reporter on this story: Dina Bass in Seattle at dbass2@bloomberg.net

To contact the editor responsible for this story: Tom Giles at tgiles5@bloomberg.net

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