Hoping to boost its collaboration software strategy, Microsoft Corp. on Thursday announced its intention to acquire Groove Networks Inc., naming Groove founder Ray Ozzie as the company"s chief technology officer.

The deal calls for Microsoft to add Groove"s products into Microsoft"s Office System lineup of products and services, along with bringing over Groove"s core development team. Ozzie, the creator of Lotus Notes, will report directly to Microsoft chairman Bill Gates.

Once the deal is approved, Groove will become part of Microsoft"s Information Worker Business unit, and will continue to be based out of its Massachusetts headquarters. Company officials declined to disclose the financial terms of the deal.

The deal poses some interesting questions for how both companies will weave in Groove"s collaboration software with two critical releases expected from Microsoft in 2006, namely the long-awaited next version of Windows, code named Longhorn, as well as the next version of Office designed to fully exploit Longhorn.

"Microsoft has two big releases coming next year in Longhorn and Office 12, which are radically different from their predecessors. They both have millions of lines of code, hundreds of developers, and programming teams well into their development phases. It is going to be hard to take a step back and stitch new technology and strategies into those products," said Nate Root, a vice president with Forrester Research, in Cambridge Mass.

Root and other analysts said they had been expecting the acquisition for some time, and generally think it makes strategic sense.

"Microsoft and Groove have been outstanding partners. Microsoft has been able to kick a lot of business Groove"s way because Groove fills in a gap that Microsoft does not have any technology in, the off-line collaboration market. It is a smart move," Root said. "The one downside is, it might be a smart move that is happening a little later than what would have been ideal," he added.

The fact Microsoft is making Ozzie CTO is sending signals to some observers that the latter"s role will be more than one of just shepherding the deal through to completion. Some believe Ozzie will play an integral role in shaping Microsoft"s overall collaboration strategies with new products.

"It looks like they want Ray to be around for the long haul to make some other paradigm changing inventions like Notes and Groove. You can imagine some pretty far out conversation over a cup of coffee or a beet between those two," Root said.

In a prepared statement Microsoft group vice president in charge of the company"s Information Worker Business unit, said the deal makes sense because the companies have a shared vision for collaboration. He said Groove complements Microsoft"s collaboration products "by helping us better serve businesses with mobile workers and remote offices and will assist Microsoft in being able to offer both small and large companies more integrated collaboration software and services.

Currently Microsoft has Office SharePoint Portal Server and Windows SharePoint Services that allow IT shops to create and manage shared spaces for groups of information workers within an IT-based network. Just this past week the company introduced Office Live Communications Server and Microsoft Office Live Meeting that together reportedly offer a unified communications infrastructure for information workers.

Microsoft initially invested US$51 million in Groove amounting to a 20 percent stake in the company. Through other investments from Microsoft and other financing since then, Groove has received some $155 million in funding.