Trouble Ahead for Microsoft Reponse Point?

Microsoft is playing coy with Response Point, its advanced, voice-driven telephone system aimed at the small to medium-sized business market.

At a town hall meeting earlier this summer Microsoft said it had no plans for any further releases of the product. More recently, the company said it is reevaluating its intentions for Response Point.

Analysts say there may be good reason for the ambiguity. With the SMB telephony market in flux, and against the backdrop of a soft overall economy, Microsoft may be embracing a wait-and-see strategy.

“Clearly their initial ambitions are dead,” said Jon Arnold, principal with research group J. Arnold and Associates. “For the time being it is going to be a lower priority for Microsoft, that’s pretty clear. Maybe they will re-evaluate the market one or two quarters out, but maybe by then it will be too late.”

Doubts about Response Point emerged this spring with published reports that an unspecified number of Response Point team members had been laid off. Things got hotter when Response Point Program Manager John Frederickson told VoIP resellers that the company had no plans to release future versions of the software.

Despite that pronouncement, things appear to still be in flux. A Microsoft spokesman told us last week: “The Response Point team is currently evaluating their roadmap and product plan and will have more details to share at the end of this calendar year. Until then, the team will be focusing on maintaining the current version and supporting OEMs and their resellers in marketing and selling the current product.”

So, what’s happening to Response Point?

Launched in October 2007, Microsoft’s big play in SMB telephony and unified communications drew early support, being packaged as an appliance by three OEMs: D-Link, Aastra Technologies, and Quanta Computer.

Microsoft has said the product is doing well in the market. So what’s the holdup? Analysts point to a tightening of the purse strings.

“It may be a funding issue,” said Todd Yamasaki, research analyst at the Radicati Group. “The uptake for the Response Point solution has been fairly good, but as far as pumping more money into it, that funding that may not be there right now.”

With many irons in the fire, the software maker may be looking to tighten up on cash flow at a time when spending across the boards is sluggish. “They couldn’t justify continuing to support certain startups that were not going to generate near-term revenue,” Arnold said. “Response Point is still pretty much a beta product and I’m sure they were not bringing in much if any revenue on it at this point.”

All this is more than mere speculation. A review of related Microsoft products suggests there may be a thoughtful strategy at work, Yamasaki said. “They may be focused on their Business Productivity Online Suite, which is similar to Response Point. Or they may want to focus more on their Office Communication Server, which offers basic voice and PBX functionality.”

What does Microsoft lose by shelving Response Point, at least for the time being? One might posit that there is a credibility issue. It’s hard to beat Microsoft for credibility, and yet here is the company making a major leap – from software into telephony – and stumbling along the way. Analysts suggest the SMB community may be cool to a second try.

Moreover, the strategic withdrawal puts on hold, at least temporarily, a program that might have opened a door into a significant market.

“This Response Point initiative is an important piece for them,” Arnold said. “SMB is a market that isn’t going to be a PBX buyer, so it is someplace where Microsoft can more or less compete” without having to stare down more established players like Avaya and Nortel.

Meanwhile, the VARs may be out in the cold. “They are obviously going to take a loss on the businesses that they there were developing around this. They are obviously not going to be very happy,” Yamasaki said.

In order to mend fences, Microsoft likely will have to show itself ready to get back to basics.

“Microsoft needs to reassert its value proposition, which is to be software based. They may have gone a little bit too far beyond that,” Arnold said. As to Microsoft’s ambitions in the realm of unified communications, the company will still be a player, but in a more modest way. “They need to reestablish their place within the telephony ecosystem. It’s very important for them to point out that Microsoft Offices Communications Server and Microsoft Exchange are still very voice friendly.”

Whither Response Point? Lacking further pronouncements from its maker, one must assume this interesting and ambitious play to be on indefinite hold.

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