Microsoft, Nortel Partner To Deliver Communications

Microsoft Corp. and Nortel Networks Ltd. on Tuesday announced a strategic alliance to help companies migrate off of traditional telephone systems and onto a unified communications platform that encompasses email, instant messaging, Internet telephony, and multimedia conferencing.

Under the four-year deal, Toronto-based Nortel will provide the services and networking technology and Microsoft the software to help companies transition from traditional PBX systems to Internet-based communications.

In a joint teleconference, Mike Zafirovski, president and chief executive of Nortel; and Steve Ballmer, chief executive of Redmond, Wash.-based, Microsoft, promised to provide products and services that would transition companies without causing major upheavals in their operations.

"The approach is revolutionary in terms of impact, but Microsoft and Nortel have figured out how to implement it in an evolutionary way," Ballmer said. Zafirovski added that customers won't have to "rip and replace" their current communication systems.

The companies have formed what they're calling the "Innovative Communications Alliance" as a go-to-market vehicle. Nortel will become the systems integrator and believes it can grab substantial new revenue through other service offerings, such as convergence planning, optimization, monitoring and managed services.Zafirovski said the company expects to reap "well in excess of $1 billion" in new revenues over the next three years. Ballmer declined to provide financial projections, saying Microsoft was approaching the alliance as a long-term strategy.

The chief executives declined to disclose financial details of the alliance, which would include joint teams for collaboration on product development for mobile and wire-line markets. Nortel plans to complement Microsoft's unified communications platform with its enterprise contact center applications, telephony functions, mobile technology and data-networking infrastructure.

The deal, which includes an option to extend the alliance beyond four years, also includes development of training and incentive programs for joint sales teams. The companies also plan to invest substantial resources in marketing, business development and delivery. The alliance-developed products will be geared to small and medium-sized businesses, and the enterprise.

The partnership is a reflection of a dramatically changing communications market in which businesses are adopting Internet technology, particularly voice over Internet protocol, or VoIP, as a means to reduce the costs of traditional PBX systems and long-distance services. In addition, Internet-based communications provides more flexibility by enabling companies to integrate instant messaging, video conferencing and other software-based services into business processes automated through computer systems.

Microsoft is heavily focused on pulling communications into processes it hopes companies will build around its 2007 Office system. In June, Microsoft unveiled its unified communications platform comprised of five products: Office Communications Server 2007, Exchange Server 2007, Office Communicator 2007, Office Live Meeting and Office RoundTable. These products are expected to ship before June 30, 2007, the end of Microsoft's current fiscal year.Mike Gotta, analyst for the Burton Group, said the Nortel partnership reflected how Microsoft is moving beyond technology with partnerships that add integration services, consulting, and sales and marketing.

"(The business of unified communications) is not just software connected to software, or software connected to hardware, it's an actual business model or ecosystem," Gotta said.

Microsoft, which also has a partnership with Nortel rival Siemens Communications Inc., is expected to be "opportunistic" in its alliances, working with any company that helps it become a player in communications.

"Microsoft is in a position where it can spin multiple plates," Gotta said. "Some of these deals will work out, and some of them won't."

The Nortel alliance is also expected to place pressure on a rival partnership between IBM and Cisco Systems Inc. Those companies are expected to increase their collaboration in order to compete."They need to raise the bar," Gotta said. "I'm surprised they're not closer."