Exchange's uneasy dominance

Microsoft now dominates the enterprise collaboration market, although it wears that crown uneasily. The vendor seems more nervous than ever about its future prospects in the  collaboration market - and it has many good reasons to worry.

Microsoft is locked into a long-running horse race with Lotus for the lead in the groupware arena, and any slip on its part could jeopardize its market standing. Microsoft also recognizes the challenges it faces from standards-based messaging products, browser-based Web collaboration products and peer-to-peer offerings, as well as such competitors as Lotus and Novell.

Microsoft has the undivided attention of competitors, most of which aren't shy about pitching their collaboration products as alternatives to Exchange. Dozens of vendors can claim that their products do the core of what Exchange does - e-mail and calendaring/scheduling - and can do it less expensively.

On the customer side of the equation, Microsoft is painfully aware that no more than one-quarter of its Exchange 5.5 installed base has upgraded to Exchange 2000, in spite of that latter version's having been on the market for more than two years. Users' beefs with Exchange 5.5 and Outlook include the products' premium pricing, performance and scalability problems; substandard offline access functionality; inflexible public folders; and vulnerability to viruses and spam.

Microsoft must know that many corporate customers are looking for alternatives to Exchange 2000. There's nothing particularly wrong with Exchange 2000, and it adds considerable new user and administrative functionality over Exchange 5.5. But upgrading to Exchange 2000 requires a concurrent upgrade to Windows 2000 and Active Directory. Many Exchange users are reluctant to undertake three concurrent infrastructure upgrade projects when IT budgets are under serious pressure from a down economy. Many organizations will look seriously at any standards-based product that does e-mail and calendaring as well as Exchange.

But there's little evidence that established Exchange users are migrating from Microsoft's collaboration offering in great numbers. Nevertheless, Microsoft has developed a defensive strategy that primarily revolves around an aggressive offense. Undeterred by sluggish customer acceptance of Exchange 2000, Microsoft has pushed the development of the next two versions of the product, code-named  Titanium and Kodiak (slated for release in 2003 and 2004-2005, respectively). Once again, Microsoft is announcing impressive feature lists and promising significant improvements in user and administrator productivity.

However, Microsoft has failed to define a compelling reason for users to migrate to either of these future new versions, much less to Exchange 2000. For the most part, users are reasonably content with Exchange 5.5 and rely on it for the core collaboration services of e-mail and calendaring/scheduling. Users' perception of these core features as "commodity" services will continue to weaken the traditional corporate justification for investing in full-featured groupware such as Exchange and Domino. By emphasizing feature bloat in future versions of Exchange, Microsoft risks creating the perception that its product is too high-end for the mass corporate market.

Another trend that could weaken Exchange's position in the market is, paradoxically, the popularity of its Outlook client. Many collaboration vendors, including Lotus and Oracle, provide plug-ins for customers who wish to keep using Outlook but use it to access those vendors' servers. End users don't care what server product is providing their back-end messaging and calendaring functionality. Consequently, Exchange's core functionality is becoming "commoditized" through marketplace trends. As a result, current Exchange organizations have some flexibility to swap it out for a competing product.

Clearly, Microsoft isn't immune from these basic trends effecting the collaboration market. Exchange's dominant position in this competitive arena isn't as unassailable as it might appear.

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