By Matt Rosoff [bio]
Posted: Feb. 17, 2003

The following is the full text of an article published by Directions on Microsoft, an independent research firm focused exclusively on Microsoft strategy & technology. Each month we make one or more key articles available to non-subscribers.

PlaceWare, a provider of Web-based virtual conferences, has agreed to be acquired by Microsoft for approximately US$200 million. PlaceWare, which will become a core part of a new Real Time Collaboration group in Microsoft, will provide a hosted collaboration solution for businesses and could help drive sales of Microsoft desktop applications that link to the service. In addition, PlaceWare’s expertise and technology could help Microsoft build a successor to its current conferencing software, Exchange Conferencing Server (ECS) and NetMeeting, helping it compete with collaboration offerings from IBM and Oracle.

Although PlaceWare does not fit Microsoft's usual criteria for an acquisition—it uses non-Microsoft technology and runs a hosted service—Microsoft chose it over other candidates for its ease-of-use and scalability. More generally, the investment highlights Microsoft’s belief that real-time collaboration will someday become as widespread among businesses as e-mail. Still, Microsoft must take steps to clarify its collaboration strategy and roadmap if it hopes to attract the customers it expects.

What PlaceWare Offers

Based in Mountain View, CA, with offices in Oregon and the United Kingdom, PlaceWare was founded in 1996 to find commercial uses for the technology behind LambdaMOO, a text-based multiuser environment developed at the Xerox PARC research lab in the late 1980s.

Today, the company's main product is a hosted service, PlaceWare Conference Center, that enables companies to conduct Web-based presentations or meetings with up to 2,500 participants. The company boasts more than 3,000 customers, including well-known companies in the financial services, technology, professional services, and pharmaceutical industries. The company also offers a server product, PlaceWare OnSite Solution, for companies that want to host sessions locally, but 95% of PlaceWare's customers use the hosted service instead, because it makes it easier for outsiders, such as vendors and partners, to take part in sessions. The company also offers a Virtual Classroom hosted service for training, and consulting services to help with deployment, marketing (creating branded meeting places, for example), and conference management for large numbers of attendees.

To host a meeting, presenters create a library of material they want to display, which can include any visual material from a PC, such as slide shows, PowerPoint presentations, and documents. They then upload this content to a server at PlaceWare (or to an internal PlaceWare server) and send attendees an e-mail with a link to the content library.

Once the material is uploaded, presenters can host meetings using a regular Web browser with additional plug-ins. Existing material can be annotated and new material added while the meeting is in progress. For example, a PowerPoint plug-in allows presenters to create and insert a poll in the middle of a presentation, then receive immediate feedback. Attendees use a browser without plug-ins to view the presentation and interact with presenters via text chat. Attendees can also take control of the presentation or annotate the material with the permission of the presenter, and multiple presenters and attendees can be permitted to annotate the same material at the same time.

PlaceWare has licensed patents that allow it to support voice-over-IP (VoIP), and early versions of the service offered it. However, in 1997 the company turned this functionality off because VoIP was not sufficiently reliable for interorganizational communications, and the company worried that customers would blame latency, dropped connections, and echo problems on PlaceWare, rather than on Internet traffic or other technical issues. In addition, many firewalls must be specially configured to allow VoIP traffic through.

Instead, presenters and attendees use a regular telephone for teleconferencing. Organizers can set these conferences up with any provider they choose or can contract directly with PlaceWare to purchase audio through reseller partners such as British Telecom, Sprint, or WorldCom. However, the company is reexamining the idea of offering VoIP functionality, particularly for companies using PlaceWare internally.

Unusual Profile for Acquisition

PlaceWare does not fit Microsoft's typical acquisition for a profile, primarily because its service is hosted on Unix servers and makes heavy use of Java. (Sun Microsystems boasts on its Web site that PlaceWare's service was written entirely in the Java programming language, and the browser plug-ins for presenters are Java applets.)

Several other companies offer similar services, including Centra, Genesys, and Raindance, and Microsoft has used at least two other competitors—WebEx and Intercall's MShow—for its own presentations.

Microsoft chose PlaceWare over these competitors for two main reasons:

Ease of use. Microsoft says it was particularly impressed with how easy the service is for administrators and end-users to use.

Hub-and-spoke architecture. According to PlaceWare, Microsoft also liked its "hub-and-spoke" architecture, in which conference material is hosted on a central server, rather than a peer-to-peer model in which content is hosted on the presenter's PC. Placeware’s architecture offers significantly better scalability and helps with archiving as well—attendees can go back and view presentation material after the initial meeting has ended, for instance.

Neither PlaceWare nor Microsoft expect regulatory concerns to stop the acquisition, and it will probably be complete by the end of Mar. 2003. Most of PlaceWare's approximately 330 employees, including its operations, marketing, and engineering staff, are expected to be invited to move to Microsoft's Redmond, WA, headquarters. However, PlaceWare expects its field sales force (in various international locations) and telephone operations (based in California) to remain in their current locations for the time being.

Where PlaceWare Will Fit In

Once the acquisition is completed, PlaceWare will be folded into a new Real Time Collaboration (RTC) business unit headed by Anoop Gupta, a former technical advisor to Bill Gates. The unit will reside within Jeff Raikes's Productivity and Business Services Group. In addition, the Real Time Communications team that oversees Greenwich—a forthcoming add-on to Windows Server 2003 that will enable corporate instant messaging (IM) and serve as a platform for other types of real-time communications—will move out of the Windows division and become part of Gupta's RTC team.

This organizational scheme offers some clues as to how PlaceWare will fit into Microsoft's overall collaboration strategy.

Hosted Solution Will Remain

Microsoft will continue to operate PlaceWare (probably rebranded) as a hosted service for multiparty collaboration both within and between organizations.

Although Greenwich and the Windows Messenger client that shipped with Windows XP provide a solution for one-to-one sessions, they do not support the one-to-many or many-to-many sessions necessary for broader collaboration. Moreover, until Greenwich has a broad enough installed base for companies to establish "federations" of Greenwich servers, it will be useful only for internal communications. PlaceWare will fill these gaps in the meantime.

It is somewhat surprising for Microsoft to be interested in a hosted service—over the last two years the company has deemphasized hosted services, such as those offered through the bCentral Web site. Nonetheless, Microsoft insists it has no plans to dismantle PlaceWare's current services (as evidenced by its offer to hire PlaceWare's operations staff).

There are at least two reasons for this uncharacteristic move:

Belief that demand for hosted collaboration services will grow. Microsoft believes collaboration will someday become as popular in businesses as e-mail is today. If so, PlaceWare will provide a good solution for businesses that are hesitant about buying and maintaining a collaboration server, either because such a product would be difficult and expensive to maintain or because of the difficulty of allowing partners and vendors to connect to it through a firewall.

Drive sales of other products. Given PlaceWare's position in Raikes's organization, it's likely that other productivity applications, such as Office and the Microsoft Business Solutions applications, will eventually include links to the hosted service. For example, a future edition of Word could contain a "Collaborate" menu option, allowing users to upload the document to a Microsoft-hosted server, then invite other users to view and annotate the document in real time.

ECS Replacement Also Likely

PlaceWare could also help Microsoft create a replacement for the company's current collaboration products, ECS and the NetMeeting client.

Microsoft is phasing out these products as part of a larger shift to a technology called Session Initiation Protocol (SIP), which has gained acceptance from major vendors such as Cisco and IBM. Among other benefits, SIP and related protocols can be used to set up any type of real-time communications session, including voice, video, or data, and can be used to implement consistent user identities (e.g., buddy lists and handles) and presence detection (e.g., determining which application a user is currently using) across multiple applications and devices. Greenwich and the Windows Messenger client that shipped with Windows XP support SIP; the older ECS and NetMeeting do not.

Such a solution would be necessary to satisfy enterprises that are nervous about connecting to a hosted service for reliability and security reasons and would help Microsoft compete with IBM's Lotus Web Conferencing (which offers both locally hosted and Web-hosted collaboration and was formerly sold under the SameTime brand name) and Oracle's iMeeting.

The replacement for ECS might take the form of an add-on service to Windows Server (or the next generation of Greenwich), a new server product, or the next generation of an existing server application (such as SharePoint Portal Server). However, it appears this software would almost certainly use Greenwich to retrieve buddy list and presence information and might support VoIP and videoconferencing—two features that ECS offers today.

A new client to replace NetMeeting is less likely, given that Windows Messenger already has all the necessary support for data, voice, and video. However, other desktop applications, particularly Office, will almost certainly evolve to support RTC features.

Resources

Placeware is at www.placeware.com.

For more details about Greenwich, see "'Greenwich' to Support Windows IM, Real-Time Communications" on page 6 of the Nov. 2002 Update.

For more details about Windows Messenger and SIP, see "Windows Messenger Moves IM, Conferencing in New Direction" on page 8 of the Aug. 2001 Update.

For background on Microsoft's changing strategy for hosted services, see "Hosted Services Becoming Lower Priority" on page 22 of the Oct. 2002 Update.

For background on ECS and NetMeeting, see "Exchange 2000 Conferencing Server to Enable Virtual Meetings" on page 6 of the Aug. 2000 Update.