Hub catches Microsoft's eye

Since the 1970s, when Bill Gates dropped out of Harvard and Steve Ballmer graduated, Boston hasn't mattered much to Microsoft.

Sure, the company has continually recruited bright graduates from local colleges, and acquired start-up companies like Vermeer Technologies, which made some of the earliest Web publishing software, and Flash Communications, a pioneer in instant messaging. But everything Microsoft wanted from the region wound up being vacuumed into corporate headquarters in Redmond, Wash.That may be changing, with Microsoft's ''purchase" of Beverly-based Groove Networks in March. (The quotation marks are deployed intentionally; Microsoft paid $120 million for Groove, a company that had raised $155 million in capital, about half that coming from Microsoft. That's a lot like shopping at your own yard sale.) The seeds could be planted for an enduring Microsoft product development facility in Boston, which would give Microsoft a local home for any future acquisitions. But some think that the Groove acquisition was simply about plucking founder Ray Ozzie from Groove so that he could serve as a lieutenant to Bill Gates.So how serious is Microsoft about expanding its presence in Boston?

The company now has three main locations in the area. Two are in Waltham, almost directly across Route 128 from each other. On the east side of the highway, the district office for sales, marketing, and services is the biggest local office, employing 222 people. On the west side is the Microsoft Technology Center, which has just 10 employees and serves as a sort of new-car showroom for Microsoft technology, allowing prospective customers to take it for a test drive. The third site is Groove's headquarters on the North Shore, where about 175 people work.''We're still working through how we pull all those things together," says Ted McLean, Microsoft's recently installed general manager for New England. McLean oversees the two Waltham locations, and reports to the sales and marketing department. The Groove office is currently headed by David Scult, who reports to a product division of Microsoft focused on ''information workers." Ozzie, who is now one of Microsoft's three chief technology officers, is spending about half of his time in Redmond, and reports directly to Gates.''We're a very complicated structure from the outside looking in," says Dan'l Lewin, a corporate vice president for business development at Microsoft. ''But from the inside it is pretty clear." Lewin works for Microsoft in Silicon Valley, but visits Boston about four times a year to foster relationships with venture capitalists and start-up companies.

Lewin says there are three different kinds of relationships that Boston start-ups can have with Microsoft. ''They can know what we're doing and stay out of our way. They can be compatible with our products. Or they can compete with us," Lewin says. ''We really like two out of those three options."

Up in Beverly, the Groove crew is working to integrate their online collaboration tools into the next edition of Microsoft Office, expected to debut sometime late next year.

''By and large, Groove wasn't a market success on its own -- it was a technology success," says Doug Levin, a former Microsoft executive who is now CEO of Black Duck Software in Waltham. ''But Microsoft can translate that tech success into a market success. They have that power."

The big goal for Groove's employees is to make the integration work smoothly, and help Microsoft sell a lot of copies of Office 12.

But there's still a question of how well connected Groove will be to the mother ship in Redmond -- not to mention with their new colleagues over in Waltham.

''Microsoft used to believe that development was a contact sport," says Francis deSouza, an entrepreneur who sold Flash Communications to Microsoft in 1998 but left in 2001 to start another company. ''You needed people bumping into each other. In Redmond, you wanted your entire development team in the same building. Ideally, they'd be on the same floor."

DeSouza says that Microsoft is one of the last big technology companies to really commit to setting up product development centers outside of its headquarters.

''The next stage of their growth will require it," he says. ''And they'll have to work at it."

The first big development center to coalesce outside of Redmond was Microsoft's campus in Silicon Valley, which now employs about 1,200 people and combines ''long view" technology research with shorter-term product development. Boston would be lucky to have a Microsoft site that approached Silicon Valley's significance.

So what are the signs to watch for? First is how influential Ozzie becomes within the company.

Second is whether we start seeing top Microsoft execs from Redmond visiting Boston more often. That includes Gates, Ballmer, Jeff Raikes, who runs the Information Worker business, and Steve Sinofsky, who runs the Office division.

''If you bump into any of those guys at Logan, that's a good sign," says deSouza.

Third is whether Microsoft consolidates its three locations into a nascent Boston campus. The lease on Groove's headquarters in Beverly is up next year, and it would be smart if Microsoft brought its developers together with its sales, service, and support folks. Also, Beverly isn't exactly a spot that's attractive for a newly hired programming whiz out of MIT.

Finally, it would be a good omen if Microsoft started recruiting some pure researchers to work at its local offices, and if the next start-up Microsoft acquires is allowed to stay put, rather than be shipped out to Redmond.

Ozzie says he intends to try to lobby for the Boston area on his trips to Redmond.

''I will be an active advocate within Microsoft of expanding activities in Massachusetts, because I believe there's a lot going on here, and a lot of talent that can be brought to bear on a number of Microsoft initiatives." But he says he can't offer any guarantees. ''We don't go anywhere lightly, in terms of setting up a development site, and with Groove, Boston is now a development site," says Lewin. McLean says any expansion here won't be rapid, but would be more of a slow and steady increase.

Enough people seem to be working to ensure that Microsoft builds up to critical mass in the Commonwealth. I think the odds of it happening over the next three to five years are pretty decent. And that would be good not just for employment. Having Microsoft here to compete with, partner with, and purchase local companies would be good for the tech community as a whole.

On the WebThis week, look for an audio version of my interview with Groove founder Ray Ozzie online. It will be the first in a series of ''Globe Bizcast" podcasts that Boston.com will be publishing.

Scott Kirsner is a contributing editor at Fast Company. He can be reached at kirsner@pobox.com.