IBM is to spend a $1 billion developing unified communications products over the next three years. The company is set to go head-to-head with Microsoft in this increasingly important market.

Unified communications refers to the combination of instant messaging, the web, VoIP, videoconferencing and other comms media using a single user interface. According to IDC, the market will grow to US$17 billion in annual revenue by 2011.

Steve Mills, the senior vice president of IBM's software group, said IBM was ramping up its investment in products such as Lotus Sametime to provide unified communications to the largest business customers.

Microsoft recently launched its competitor to Sametime, Office Communications Server, offering it as a hub for unified communications built on a Windows infrastructure.

IBM differentiates itself from Microsoft in several ways, including its 10-year experience with the Sametime product and its ability to support heterogeneous systems.

Sametime is historically a corporate instant-messaging client; IBM claims to have 20 million standalone Sametime users. Two years ago it rearchitected the software on the Eclipse open-source framework to make it easier for third parties to build add-on applications. It also added VoIP and video functionality.

IBM has demonstrated some new functionality that will be part of Sametime by the end of the year. Called Unified Telephony, it helps users manage telephone calls from within Sametime by routing calls to various devices and setting rules on how to handle calls based on status. For example, a user can set Sametime to direct calls to a mobile phone if they are working remotely.

IBM has built the basic functionality of Sametime into Lotus Notes to link unified communications to its collaboration software, in a similar way that Microsoft is linking Office Communications Server to its Office productivity and Exchange Server messaging software. Executives have also linked collaboration and unified communications in the messaging about their strategy.

Though Microsoft constantly touts customer wins for Outlook/Exchange over Lotus Notes, Mills said Lotus is gaining share in the "market where we compete with Microsoft," which is among the largest business customers. He acknowledged that Microsoft was winning market share among businesses in general, but not in the target high-end business market.

"Microsoft makes a bunch of statements that are somewhat misleading in terms of what is happening," he said.

Mills also said that IBM expected to increase its unified communications revenue by 10 percent or more, year over year, for at least the next five years.