After two years of promises, Microsoft is bringing telephony to Office 365, putting Cisco on notice that the software maker hopes to trump its rival with an all-in-one communication and office productivity suite.

Microsoft last week gave attendees of its Worldwide Partner Conference in Orlando, Fla., their first look at a premium Office 365 Enterprise Suite, E5. Embedded in the cloud-based software were Skype for Business services, including cloud PBX (private branch exchange) and PSTN (public switched telephone network) calling.

The additions, promised since early 2013, mean Office 365 customers could eventually make telephone calls to anywhere directly from the online productivity suite. "The fact that Office 365 could potentially be a phone system replacement makes it a lot more attractive," said Irwin Lazar, analyst for Nemertes Research, based in Mokena, Ill.

Office 365 telephony gives Microsoft a "huge leg up" against Google Apps for Work, Lazar said. In addition, companies using the Microsoft suite would have no reason to buy telephony services from voice over IP (VoIP) companies, such as 8x8 Inc., Fonality Inc. and ShoreTel Inc.

"It becomes a one-stop shop for all your communications," he said.

Cisco will have to respond Cisco is also in danger of losing business to Microsoft. Today, many enterprises using Office 365 also have Cisco's telephony platform, Unified Communications Manager (UCM). That technology combo may not be necessary in time, if Microsoft continues to improve telephony capabilities. Some vendors have already seen interest among customers in comparing Cisco UCM and Skype for Business. Dell introduced diagnostic tools this month for comparing costs. It becomes a one-stop shop for all your communications. Irwin Lazaranalyst at Nemertes Research Cisco will have to respond to Microsoft over time with an alternative collection of products. Cisco, for example, could partner with Google or IBM to get the productivity features needed to deliver an Office 365 alternative, Lazar said. "Longer term, they probably need to have a more holistic offering that matches up on a licensing cost basis and a feature-by-feature basis with Office 365," he said.