Microsoft, IBM Plan Major Upgrades To Exchange And Lotus

E-mail is getting interesting again.

The market for business e-mail software has been largely stagnant the past few years, as companies stood pat with tried-and-true systems or invested modestly to accommodate reading messages on Web browsers and PDAs. But products from Microsoft and IBM due in the next year could give CIOs new incentives to upgrade their e-mail systems to comply with government regulations, get control of traveling workers, and harness the popularity of Web meetings and Internet phone calls.

Microsoft is preparing to launch a broad test of Exchange Server 2007, the first new version of its e-mail server in four years. It released an initial beta version of the software in December, and a second beta is due soon. Exchange 2007 will include features to help comply with government regulations on e-mail retention and access, add options for Internet services to block spam and archive e-mails, and include the ability to make IP phone calls and handle e-mails, voice mails, and faxes from users' in-boxes. Other features will let companies establish e-mail governance policies, like preventing users in different departments from e-mailing each other.

Exchange also is at the vanguard of Microsoft's push to move most of its software to 64-bit computers during the next three years. The new version, due next year, will run only on servers with 64-bit chips from Intel and Advanced Micro Devices, a move Microsoft says will increase customers' uptime as they bring more users online.

IBM plans to start testing a new version of its Notes e-mail client and its Domino server later this year. The release, code-named Hannover, will include a new user interface based on the open source Eclipse programming environment; the ability to see whether colleagues are online and kick off chats or Internet phone calls from within the in-box; a built-in word processor and other productivity tools meant to offer an alternative to Microsoft Office; and a method for storing e-mails, voice mails, and documents related to various projects. A public beta of the product is expected this fall.

Microsoft has been capturing market share from IBM for several years. But many IT departments have opted not to upgrade their e-mail systems, which are seen as commodities that work fine as is. "This is the perennial challenge for products in this category--to demonstrate enough value to get people to upgrade," says Peter O'Kelly, a Burton Group analyst. "We're about to see revitalized competition."

New entrants in the market for business e-mail, such as Zimbra and Scalix, employ Ajax Web technology that provides a much richer experience using e-mail from a Web browser than what Microsoft and IBM have been able to deliver. The startups are positioning themselves as alternatives to the upgrade and security grind of Microsoft's products, says Maurene Caplan Grey, a principal at Grey Consulting.

But in a saturated market in which some companies still run Microsoft's 8-year-old Exchange 5.5 software, Microsoft is counting on compliance and collaboration to sell new seats. Companies that buy Exchange 2007 will have the option of buying Exchange Hosted Services, technology Microsoft acquired when it bought FrontBridge technologies last year. The services can filter e-mail for content that doesn't comply with regulations, block spam and viruses, maintain archives for regulatory compli- ance, and encrypt outgoing e-mail. Microsoft is promising that Exchange and the Office suite will work more closely with Microsoft's Live Meeting and Live Communications Server Web conferencing and instant messaging products.

Getting all of Exchange 2007's new features will cost more. Companies must buy a 64-bit version of Windows Server for computers running Exchange, and access to Microsoft's "unified" in-box and Hosted Exchange Services will require a new enterprise license for each user.

Will companies see enough value to buy? E-mail remains the all-time killer app, but that doesn't mean companies will kill their budgets to improve it.