The Contacts feature in Microsoft Outlook 2007 gets a huge overhaul, with a new version released this morning that includes a Business Contact Manager. But that new feature will be an option, and for some, a costly upgrade.

Since it was introduced as part of Exchange 5.5, Microsoft Outlook has had the ability to record contacts on a simple database stored on the client's system. As time went on, that contacts list was shared with Windows...for better or worse. But the contacts system has essentially been a flat-file database, not a relational one. So while you could group contacts according to company, you couldn't exactly use that list as a way to maintain information that pertains to those contacts.

What's more, if you did have a customer relationship management system, you'd find yourself trying to find a way to reconcile the contacts list in Outlook with the one in your CRM program, even if it was from Microsoft.

This morning, Microsoft has come up with a new approach to the problem for which some Outlook users have been asking for over a decade: It's amending Outlook to be able to handle business contacts in a relational manner -- for example, to group customers by the contact who brought them to you, or to maintain custom data on those customers. Contact management is being built directly into Outlook.

But there's a catch: Microsoft Office Outlook 2007 with Business Contact Manager, as the product will now be known, is a separate version of Outlook that will be integrated, starting today, into Office Small Business, Professional, and Ultimate editions. For those who already have Office editions with the pre-existing Outlook 2007, or who purchase Outlook or Office without the Business Contact Manager, the new version will be available separately as a replacement for $149.95.

"There's a 'referred-by' field," Outlook senior product manager Ann Quaranta told BetaNews, "so you can track how you were referred to this person or how you found out about this person." If a user has purchased a marketing list, or has gathered names from a trade show, Quaranta explained, she can now keep track of how her contacts were obtained.

In the BCM version, she went on, e-mail messages can now be traced back to a single contact. Rules can be created that enable future messages to be added to an ongoing trace, that relates back to a given business exchange or relationship.

"Outlook with Business Contact Manager allows businesses to organize their key customer information in a single location," she said, "to manage leads and opportunities throughout the sales cycle, and to create, personalize, and track marketing campaigns in-house. It will also centralize project information and tasks to help improve organization. And because Outlook with [BCM] is completely customizable, it can meet the unique business needs of individual businesses."

BetaNews asked Quaranta if that business contacts list would remain compatible with other products and software, such as certain cell phones' import features, and relationship management databases in other CRM programs.

"In most simplistic terms, this is Outlook," she responded. "So if this is something that has been compatible with Outlook in the past, nothing should change there, and Outlook with [BCM] definitely supports offline scenarios, updating contact information on your smart phone and then syncing again when you're back in the office." However, it's not completely certain whether all third-party services, including some we mentioned for Linux, would remain compatible.

This morning, Microsoft is also releasing Office Accounting 2008 as a new component under the Office umbrella banner, and endowing it with the ability to sync with Outlook BCM. This way, consultants and other small business owners can perform tasks such as billing and invoicing specific contacts from within Outlook rather than a separate program or within Office Accounting.

"The other big timesaver is the ability to track billable time in your Outlook calendar," Quaranta told us, "and then easily convert it to invoices. This is a big thing for people who are on the road, so basically you can go ahead and open up the appointment that exists in Outlook and track your billable time against that, and later invoice against it."

There will be three tiers of Accounting packages available starting today. A Standard edition with apparently minimal marketing will be sold for $99.95, with the flagship Professional edition selling for $199.95. A "Professional Plus" edition will add payroll features along with integration with eBay, and will apparently be sold to business license customers.