Microsoft is in the Groove

Microsoft Corp. has agreed to invest $51 million in struggling peer-to-peer networking company Groove Networks. The investment will give Groove founder Ray Ozzie's one-time rivals in Redmond a minority stake in the legendary coder's four-year-old startup. Ozzie is the creator of Lotus Notes, which once stood toe-to-toe with Microsoft's Office suite in the market for productivity applications. MS won that fight, but Notes and its successors are still with us under the aegis of IBM.

"For nearly a year, we have been working with Microsoft on several initiatives," Ozzie said, "as our early customers have asked for tighter integration with Office applications."

A year ago this month, Beverly, Mass.-based Groove introduced the first commercial version of its flagship P2P software, which allows business teams to collaborate within shared virtual spaces, in real time or offline.

Ozzie set out to secure a fourth round of venture funding when Microsoft expressed an interest in investing. Groove has raised nearly $120 million. Other investors in the latest round included Palo Alto-based VC firm Accel Partners and undisclosed private investors.

Microsoft execs say the investment can enhance the company's emerging .NET technology with complementary applications. Analysts characterized the alliance as a coup for Microsoft, which can now utilize Groove's P2P software in many of its new Internet initiatives.

Groove officials say the two firms have been collaborating for the past year to create a shared vision for XML-based Web and peer services. The joint effort focused on several areas, from programming languages and a variety of .NET services to Office, Windows XP and real-time communications initiatives, the spokesperson said.

Microsoft Chief Executive Steve Ballmer announced the deal during an appearance at the Gartner group's IT EXPO symposium in Orlando, Fla.

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About the Author

John K. Waters is a freelance writer based in Silicon Valley. He can be reached at [email protected].