The gloves are off as Microsoft challenges Cisco Systems in the corporate communications market.
Microsoft Corp. and Nortel Networks Corp. have struck a four-year deal to develop and sell products that make it easier for business people to locate and communicate with one another.
The convergence of the communications and IT industries took a significant step forward asMicrosoft Corp
. andNortel Networks
announced a strategic alliance based on a shared vision for unified communications to drive new growth opportunities for both companies.
The wide-ranging alliance announced marks the latest step in Microsoft's ambitious plan to find success in the communications technology business, as the market for its Windows operating system and Office software grows more saturated.
People say, “How is Microsoft going to grow?” You know, you usually have to start with something pretty big. Everybody communicates. Everybody uses the phone, Microsoft Chief Executive Steve Ballmer said in an interview with The Associated Press.
By engaging the companies at the technology, marketing and business levels, the alliance will allow both companies to drive new growth opportunities and has the potential to ultimately transform businesses communications, reducing costs and complexity and improving productivity for customers.
The 900-pound gorillas of their respective markets, Cisco and Microsoft are increasingly crossing paths as they venture into new sectors such as Internet Protocol communications.
Microsoft said it will jointly develop and sell Internet-based telephony and communications services with Nortel are a clear indication of the software powerhouse plans to go toe-to-toe with Cisco Systems, the leader in corporate communications.
While the companies have said they will cooperate to make sure their solutions work with each other's products, Microsoft's announcement that it will work closely with Cisco competitor Nortel to develop, market and sell communications services is a strong signal that the companies will be competing directly as they try to persuade large businesses to switch their old phone networks to ones based on IP.
The investment in communications technology also shows that Microsoft has a place in a much broader set of devices than the traditional PC, Ballmer said.
Four or five years back people were asking, “Are people going to need PCs?” Maybe all they are going to need is phones, he said. I mean, the fact of the matter is I think people are going to want to have things with big screens and little screens, keyboards and no keyboards - and I just want them all to run our software.
“The fight is definitely on,” said Zeus Kerravala, an analyst with the Yankee Group Research. This deal confirms Microsoft's intention to take on Cisco in the IP telephony market. Cisco will really need to go out and do whatever it can to get their customers moved over to VoIP (Voice over Internet Protocol) before Microsoft comes out with something that competes directly.
Microsoft's Big IP Plans
Just a month after announcing its product roadmap and grand vision for integrated video, messaging, and voice communications, Microsoft took another step into unified communications by announcing a four-year strategic alliance with networking equipment maker Nortel Networks.
The announcement included the promise of a new 360-degree videoconferencing camera, new software and new partnerships.
By combining Nortel's world-class network quality and reliability with Microsoft software's ease of use, the alliance will accelerate the availability of unified communications -- an industry concept that uses advanced technologies to break down today's device- and network-centric silos of communication (such as e-mail, instant messaging, telephony and multimedia conferencing) and makes it easy and efficient for workers to reach colleagues, partners and customers with the devices and applications they use most.
The cooperation between the two companies will be extensive and the alliance could be renewed even after the four years is up. Nortel will bundle Microsoft's unified communications software into its phone systems and the two will work together to co-develop communications software with advanced functionality. They will also develop a joint channel ecosystem; work together on marketing, and cross-license intellectual property.
This software-centric approach will provide the easiest transition path for businesses, helping them to reduce the total cost of ownership and better protect current and future investments. It will also more quickly enable the creation of new, innovative applications.
The two companies say their work will accelerate the development of collaborative applications that increase productivity by making it easier to reach co-workers and partners whenever and wherever they are needed.
Nortel CEO Mike Zafirovski said the deal will allow the telecommunications equipment maker to get a head start as more companies move toward offering futuristic, software-based communications products. He said Toronto-based Nortel expects to see more than $1 billion in revenue between 2007 and 2009 as a result of the deal.
In striking such a broad deal, Redmond-based Microsoft and Nortel are betting that companies will want high-tech products that let people easily send e-mail, fire off instant messages or call colleagues and clients, regardless of location or the device they are using.
For example, a person working in a hotel room would be able to take calls to an office phone number over a laptop computer.
Ballmer said he believes companies will be compelled to upgrade as consumers start using increasingly high-tech gadgets in their spare time, and pressure their bosses for similar technology at work. But he conceded that it is hard to say how fast companies will move.
“It is 100 percent that it is going to happen and happen quickly. The only question is how quickly in business,” he said.
Such ideas are enticing. But analyst Peter Pawlak with independent researchers Directions on Microsoft said most companies are gradually adopting such technology when they need new phones or move offices.
The deal further raises the stakes between Cisco and Microsoft, the two companies that have been most vocal about unified communications and that are best positioned to become leaders when the nascent market begins to take off.
Cisco also sells IP telephones. And the company claims it displaces about 12,000 traditional telephones based on (time-division multiplex, or TDM, technology) every business day. According to the latest figures from Synergy Research, Cisco is the No. 1 global supplier of enterprise voice, based on revenue. Avaya is a close second, while Nortel trails in third.
Now Cisco is moving toward integrating its voice services with other communications services like e-mail, instant messaging, video and Web conferencing. In March it introduced its Unified Presence Server, which collects status and availability data from users' devices and feeds it to Cisco applications, and the Unified Personal Communicator, which allows users to see on their PCs or IP phones who is online. The company claims that more than 70 percent of the Fortune 500 is using Cisco Unified Communications.
Microsoft desperately needs agreements with telephony vendors like Nortel to get its communications software onto their hardware and into offices everywhere and make inroads against software developed by Nortel, Avaya, and Cisco themselves.
"We are investing together because the communications industry is at an inflection point," said Ballmer. We will have deep collaboration in product development with Nortel, allowing us to rapidly deliver high-quality, highly reliable solutions that will support mission-critical communications. The opportunity for our customers is fantastic. We will enable them to realize tremendous economic and business benefits from unified communications.
Ballmer said both companies will contribute money to develop and market products as part of the deal. Microsoft also will pay an undisclosed amount to license patents from Nortel. The companies said the deal could be extended beyond its original four-year term.
A flurry of partnerships was on the table when Microsoft first discussed its unified communications roadmap in early June, but none were as complete as this one. Nortel brings an expertise in back-end IP-based telephony infrastructure and standards like Session Initiation Protocol that Microsoft does not necessarily have in-house.
Components of the Agreement
- The companies will enter into a four-year alliance agreement, with provisions for its extension.
- Nortel will be Microsoft's strategic partner for advanced unified communications solutions and systems integration.
- The two companies will form the Innovative Communications Alliance ( http://www.innovativecommunicationsalliance.com) -- as a go-to-market vehicle.
- Microsoft and Nortel will deploy the other's technologies in their enterprise networks
Solutions and Systems Integration
- Nortel becomes a strategic systems integration partner for the advanced unified communications solution.
- Nortel believes it can capture substantial new revenue through service offerings such as convergence planning, integration, optimization, monitoring and managed services.
Joint Product Development
- Nortel and Microsoft will form joint teams to collaborate on product development that spans enterprise, mobile and wireline carrier solutions.
- The two companies will cross-license intellectual property.
- Nortel and Microsoft will engage in early-stage integration and testing.
- Nortel will deliver solutions that complement Microsoft's unified communications platform, including enterprise contact center applications, mission-critical telephony functions, advanced mobility capabilities and data networking infrastructure.
- Microsoft and Nortel will jointly sell the advanced unified communications solution and integration services. The plan is to develop a training and incentive program for the companies' sales teams.
- Both companies will invest substantial resources in marketing, business development and delivery.
- Microsoft and Nortel will build a joint channel ecosystem using both companies' systems integrator, reseller, and service provider relationships.
- The two companies will develop a series of compelling solutions for a range of customers, including small and medium-sized business, large corporations and service providers.
The IP Communications Cross Fire
Interoperability and Competitive Advantage
Microsoft is working in a similar way with other IP communications providers, such as Avaya, Alcatel and Siemens. But Ballmer said the alliance with Nortel is different from these other efforts.
Because of their strong positions in traditional markets, Cisco and Microsoft have already said they will work together to make sure their products interoperate. Specifically, this means that Cisco's products will integrate with Microsoft's Office Communicator 2005 and Office Live Communications, allowing users to launch a VoIP conversation directly from their Microsoft Outlook client. The interoperable package should be available in August 2006, the companies said.
This announcement is not about interoperability alone, Ballmer said. "This is about having an aligned offering and salespeople from Microsoft and Nortel in front of customers every day to talk about our common solution set based on our unified communications platform and extending to the advanced applications that Nortel builds."
"Cisco and Microsoft have a strong track record of collaboration around our respective products and technologies," a representative said in a statement. "And we continue to look for opportunities to build on these successful initiatives, and to new collaboration and integration points moving forward."
It is not the first time Nortel and Microsoft have created an IP communications agreement. Last month, LG-Nortel, the Korean-based joint venture of LG Electronics and Nortel, joined hands with Microsoft by announcing the two would work together on a new desktop phone and Windows CE-based communication devices.
Pawlak said there is plenty of potential in the sector for both Nortel and Microsoft. But he said it is hard to say how significant this deal will be for the two companies, since neither released any specifics about how they would collaborate on individual technologies.
“They did not say anything quite that specific,” he said. “They sort of waved their hands about integration and alignment of product plans and strategies, and things like that.”
For the time being, Cisco seems to be taking the assault in stride