Microsoft added Internet functionality in its Exchange 5.0 release, which shipped in March 1997. Exchange 5.0 offered a suite of new Internet enhancements including POP3 and NNTP functionality, in addition to allowing unlimited storage. Exchange Server 5.5 was released in November 1997 to meet the demand for advanced messaging beyond the need for point-to-point e-mail. Exchange 5.5 offered an enhanced set of Internet tools, such as NNTP, Lightweight Directory Access Protocol (LDAP), and Outlook Web Access Client (OWA). Unfortunately, the product was still bug-ridden, and enterprises found issues ranging from the central Exchange database, known as the Information Store, freezing for unknown reasons to TCP/IP memory leaks. Microsoft is now releasing Service Pack 3 for Exchange 5.5 to address a host of calendaring, storage, and interoperability issues.

Exchange's two largest competitors are Lotus' Lotus Notes and Novell's GroupWise. Sendmail, another competitor with a narrower focus, currently provides a higher level of POP3/SMTP-based security than Notes, Exchange or GroupWise. The messaging market is growing rapidly in response to increased consumer demand for "unified messaging, " which, at its base level, is a single point of access to all electronic forms of communication, including e-mail, fax, voice mail, e-forms and database access.

• First, Microsoft is attempting to establish Exchange Server 2000 as the premier turn key messaging solution for both corporate and Internet use with its new "Web Store." Web Store combines the Windows 2000 File System and Web Data into a single infrastructure, making all objects within the Active Directory URL accessible.



• Second, Microsoft has enhanced its Web-based functionality to target the Internet service provider (ISP) marketplace. We believe Exchange 2000's new clustering and enhanced Web capabilities, combined with low cost, will be an incentive for ISPs to migrate to Exchange beginning in the first quarter of 2000.



• Third, Microsoft is marketing Exchange Server 2000 under the "lower total cost of ownership " banner by offering the lowest cost per server and client seat on the market. Each Exchange Enterprise Server license costs approximately $999, and each client access license costs approximately $29. The same Novell GroupWise licensing, based on a 25-seat implementation, is priced at more than $3,480, slightly more than $99 per client seat. Lotus Notes Release 5 Mail Server licensing, also based on a 25-seat implementation, is priced at more than $2,133, about $45 per client seat. Outlook, Microsoft's front-end messaging client, is bundled with Microsoft Office. By bundling client software, Microsoft is further driving down the costs associated with implementing or upgrading a new messaging system.

During the first three quarters of 1998, Exchange Server outsold Lotus Notes Domino by greater than 700,000 client seats (Source: EMMS Electronic Mail and Messaging Systems), and it continues to take a greater share of corporate client sales. This is due in part to the necessity to upgrade non-Y2K-compliant mail systems such as cc:Mail and MS Mail. The Radicati Group surveyed Fortune 1000 companies to determine which messaging systems are currently in use. It found that Microsoft Exchange currently has a 44% market share among Fortune 1000 companies, compared to a 29% market share by its closest competitor, Lotus Notes. Among Fortune 500 companies, 52% are standardized on Microsoft Exchange vs. 24% standardized on Lotus Notes.