The Year of the Messenger

For Lotus Domino, Lotus Notes, Microsoft Exchange Server, and Microsoft Outlook, 1999 has been a very good year, or so a recent International Data Corporation (IDC) study shows. In late August, IDC released its annual measurement of the messaging marketplace. According to the report, Exchange Server added nearly 8.1 million seats in the first half of 1999, compared with Lotus Domino's addition of 7.4 million seats. Microsoft was quick to point out that it beat Lotus by 673,000 seats. However, in the past 2 years, Lotus had its strongest sales late in the year, just before its sales force closes the books. (Microsoft's books close early in the year.)

Lotus Domino and Lotus Notes continue to lead in messaging overall with about 42 million seats, compared with the Exchange Server and Outlook projection of 35 million seats. Jeff Papows, Lotus' president and CEO, estimates that Lotus Notes will have 50 million seats at the end of 1999. Many major OSs don't ship that quantity over a lifetime.

More astonishing than the numbers is the overall size of enterprise messaging and its integrated collaborative environment areas, such as computer telephony. Three years ago, messaging was a sleepy marketplace with sales in the range of 1 million units per quarter for Lotus Notes and Exchange Server. But this year, the market for these products is growing at a clip of 4 million units per quarter.

What is happening? In mid-1998, organizations began a full-scale replacement of their messaging infrastructure—a migration event. You can speculate that Y2K compliance has driven the replacement of many mail systems, but organizations' interest in installing richer messaging platforms is just as likely. Organizations are migrating systems such as Microsoft Mail (MS Mail) to Exchange Server and Lotus cc:Mail to Domino. In fact, companies such as Lotus have put special programs in place to help companies upgrade their systems. Lotus is reporting a very high retention rate—about 75 percent—for upgrading cc:Mail organizations to Domino and Lotus Notes.

The messaging market is seeing significant contractions in the low-end mail products installed base. As companies migrate to richer platforms, the base for products such as cc:Mail and MS Mail is shrinking rapidly. In 1998, IDC estimated that only 70 million file-share and host-based mail system seats remained and that about 15 million of these seats per year would switch to a richer messaging platform. The 1999 numbers bear out this migration.

The Domino vs. Exchange Server run rates have garnered much attention, primarily because these rates have all the hallmarks of a horse race. As Exchange Server and Outlook have gained momentum, Microsoft has closed the gap in the number of its seats compared with Lotus' seats. At the time Exchange Server first started to ship, Lotus Notes had about 17 million seats. The difference in seats between the two platforms today is about 7 million. Microsoft has managed to build a solid Exchange Server installed base, particularly as an infrastructure mail system in large enterprises. Bundling Exchange Server with Microsoft BackOffice and giving the Outlook client away for free in Office were also savvy marketing tactics on Microsoft's part. As a result, Exchange Server's growth has validated the importance of messaging applications in enterprise computing.

Still, Exchange Server is no Lotus Notes killer, which many people thought that Exchange Server might be at the time Microsoft introduced it. As the messaging market has developed, Microsoft has carved out a strong installed base for its messaging infrastructure platform. At the same time, Lotus has built on the Domino and Lotus Notes collaborative features to differentiate Lotus products from Exchange Server and to solidify Lotus Notes' place as a corporate groupware standard. Together, these products have come to dominate the messaging space and marginalize other products, such as Novell GroupWise. But you might have a hard time arguing that GroupWise's sales of 2.69 million seats in the first half of 1999 make GroupWise a marginal product.

For the folks installing solutions in the messaging space, a religious fervor over the benefits of Domino vs. Exchange Server exists. These folks have the kind of passion that administrators typically reserve for OSs (e.g., Linux, OS/2). Domino holds a strong lead over Exchange Server in terms of the size of its developer community and the number of applications developed on the platform. Lotus' policy to have Lotus Notes clients available for every OS and to fully integrate these clients with Domino servers, which also run on most major OSs, has served the company well.

In comparison with Lotus, Microsoft has been content to work with third-party vendors, such as Eastman Software (which has fared poorly of late) to develop add-ons to Exchange Server to create the kinds of messaging applications that Domino enables. These efforts haven't brought a flood of new developers to the Exchange Server community, nor has this strategy created a strong message that Exchange Server will seriously challenge Lotus in the collaborative space that Domino and Lotus Notes have carved.

Domino R5 is the latest major version of a messaging system to appear. Microsoft Exchange 2000 Server (formerly code-named Platinum) should appear next year. Both Lotus and Microsoft are in the process of adding significant new features to their platforms to make the messaging systems interoperate with other enterprise applications. Perhaps the most important feature that Microsoft and Lotus are adding to these products is directory-service support. Microsoft is improving Exchange Server's integration into Active Directory (AD), and Lotus is hoping to make Domino interoperate with the industry-standard directory service based on the Lightweight Directory Access Protocol (LDAP).

Given how rapidly database vendors are adding Extensible Markup Language (XML) support to their products, don't be surprised to see Microsoft and Lotus add full XML support to their enterprise messaging systems in the next few months. After all, at the core, the Exchange Server and Domino message stores are rich object databases whose data you can access and manage.

Microsoft and Lotus also have a common goal of adding knowledge-management products to their messaging portfolios. Message stores provide a rich legacy of information and data, which anyone who searches email messages on a regular basis quickly realizes. For messaging, knowledge management also means better organization of people, places, and things.

A directory service helps provide knowledge management functionality. At Compaq, Tony Redmond, director of the Applied Microsoft Technologies Group for Compaq Services, scaled AD to millions of seats. Similarly, Novell announced its application of Novell Directory Services (NDS) to messaging systems. These recent experiments show the interest in and the possibility of integrating directory services with messaging.

Another important Lotus goal for the coming year is to enable Domino and Lotus Notes to serve as a universal-messaging platform. You can expect to see data and voice integration as vendors integrate computer telephony systems into messaging platforms. IBM's voice recognition work could give Lotus a significant advantage over Exchange Server as a universal-messaging system.