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After two years of promises, Microsoft is bringing telephony to Office 365, putting Cisco on notice that the software maker hopes to trump its rival with an all-in-one communication and office productivity suite.
Microsoft last week gave attendees of its Worldwide Partner Conference in Orlando, Fla., their first look at a premium Office 365 Enterprise Suite, E5. Embedded in the cloud-based software were Skype for Business services, including cloud PBX (private branch exchange) and PSTN (public switched telephone network) calling.
The additions, promised since early 2013, mean Office 365 customers could eventually make telephone calls to anywhere directly from the online productivity suite. "The fact that Office 365 could potentially be a phone system replacement makes it a lot more attractive," said Irwin Lazar, analyst for Nemertes Research, based in Mokena, Ill.
Office 365 telephony gives Microsoft a "huge leg up" against Google Apps for Work, Lazar said. In addition, companies using the Microsoft suite would have no reason to buy telephony services from voice over IP (VoIP) companies, such as 8x8 Inc., Fonality Inc. and ShoreTel Inc.
"It becomes a one-stop shop for all your communications," he said.
Cisco will have to respond
Cisco is also in danger of losing business to Microsoft. Today, many enterprises using Office 365 also have Cisco's telephony platform, Unified Communications Manager (UCM). That technology combo may not be necessary in time, if Microsoft continues to improve telephony capabilities.
Irwin Lazaranalyst at Nemertes Research
Cisco will have to respond to Microsoft over time with an alternative collection of products. Cisco, for example, could partner with Google or IBM to get the productivity features needed to deliver an Office 365 alternative, Lazar said.
"Longer term, they probably need to have a more holistic offering that matches up on a licensing cost basis and a feature-by-feature basis with Office 365," he said.
Microsoft success uncertain
Initially, voice calling in Office 365 will appeal to small businesses looking to shave communication costs. Medium-sized businesses and large companies are likely to wait for Microsoft to prove through early adopters that Office 365 telephony can meet the needs of larger organizations.
Convincing enterprises that Office 365 is suitable for all communications will take several years, assuming Microsoft can pull it off. The company's telephony capabilities are unproven.
Cloud PBX and PSTN calling are available in preview only in the U.S. Microsoft plans to provide Cloud PBX outside the U.S. with a configuration option that lets customers use existing on-premise phone lines for inbound and outbound calling.
Microsoft partners with a number communication companies that provide connections between on-premise telephone systems and Microsoft data centers. Those companies include AT&T, U.K.-based British Telecommunications (BT) PLC, Verizon Wireless and Vodafone Group PLC.
Making calls over standard phone lines today is through a feature called SkypeOut, which cannot connect to emergency numbers like 911, or, in some cases, toll-free numbers. Users pay by the minute.
These limitations will have to go away, if Microsoft hopes to become a replacement for a Cisco-powered telephone system, said Jon Arnold, analyst for J Arnold & Associates, based in Toronto.
"You can't compare it [Skype] to full-fledged telephony," Arnold said. "It doesn't have the features."
If Microsoft builds those features in Office 365, it won't have much trouble getting them in front of enterprises. Companies are subscribing to the service in large numbers.
"We've seen a huge uptick in Office 365 in our research," Lazar said. More than half of the companies Nemertes recently polled were adopting the cloud-based software.
"Office 365 has a pretty strong toehold in the enterprise," he said.
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