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Groove gets $38M infusion, lays off 20% of staff

Microsoft and other investors have pumped $38 million into Groove Networks, a maker of peer-to-peer collaboration software. In a related development, Groove announced that it is laying off 20% of its work force.

IT administrators who took a chance on buying software from peer-to-peer collaboration pioneer Groove Networks Inc. should be happy to know that their chosen vendor is once again flush with cash.

The tiny Beverly, Mass., maker of peer-to-peer collaboration software on Wednesday got a whopping $38 million in a fifth round of financing from its investors, a group that includes Microsoft, Intel Corp. and Accel Partners.

Microsoft, which had a nearly 20% stake in Groove Networks, now holds a larger position in the company. A Groove spokesman said Microsoft is still a minority owner but declined to provide further details. He said the money will be used for general operations and that there will be no additional investments.

The bad news is that Groove has cut its work force by 20%, with the elimination of 58 jobs, as part of a restructuring of its sales, marketing and service organizations.

Groove Networks has made steady progress locking up partners. It has integrated its product with messaging and collaboration software packages from Microsoft and IBM's Lotus unit, among others. In February, the company said it would embed its application into software made by Parametric Technology Corp. of Needham, Mass., so members of a worldwide design team using PTC's CAD software can collaborate on designs.

Most recently, the company released Groove Workspace 2.5, which includes improved Outlook and SharePoint integration, as well as support for several Web service APIs.

For Groove Networks to pull in $38 million in the current economy is a credit to the company's technology, one analyst said. But he also pointed out that the 6-year-old company, which was founded by Lotus Notes creator Ray Ozzie, should be holding its own by now.

"It's nice to have this vote of confidence, and [investors] clearly would not be putting money into [Groove] if they didn't see light at the end of the tunnel," said Matt Cain, a vice president at the Meta Group, a Stamford, Conn., consulting firm. "But by this time, [Groove] should be standing on its own."

Cain said Groove is facing a time when collaborative technology is becoming prevalent in so many different places, and what was once a unique idea is now one among many. "It's hard for them to prove their value proposition and cut through the clutter," he said.

The spokesman said that even though the company has been around since 1997, it didn't launch a commercial product until April 2001. Groove counts Tyco Healthcare, Pfizer, GlaxoSmithKline and Unilever among its customers. The company has already received about $117 million in financing from Microsoft, Accel, Intel and private investors.


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