In Rising Rivalry With Cisco, Microsoft Improves Its Position With Nortel Deal

Microsoft wants a piece of the big business it sees emerging in communications software, but it doesn't have expertise or credibility in telecom. Struggling Nortel Networks wants to keep competitors from nabbing its telephone equipment customers with new software-driven features. Who's to say a little cross-pollination won't make everyone happy?

Microsoft just last month announced its product road map and grand vision for integrated video, messaging, and voice communications software. Last week, it took another big step into unified communications by announcing a broad four-year alliance with networking systems maker Nortel.

Both steps show how Microsoft values the communications market--and how much it will find itself competing with Cisco Systems, which provides the software and equipment to enable a lot of the same functions.

Unified communications involves bringing functions such as e-mail, phone calls, voice mail, and videoconferencing onto one platform. Cisco and Microsoft are best positioned to lead if the nascent market takes off. "It's very clear to us that we have the opportunity to pursue a Microsoft path, the opportunity to pursue a Cisco path," says Robert Fort, Virgin Entertainment's director of IT and a Cisco IP phone customer.

Customers won't see joint Microsoft-Nortel products until at least next year. But Microsoft gets some instant cred in telecom circles. And Nortel gets a boost as it struggles to recover from sagging sales, accounting problems, and executive turnover.Nortel will bundle Microsoft's unified communications software into its phone systems, and the companies will codevelop communications software for business customers and telecom carriers. The jointly developed products, based partially on Microsoft's forthcoming Office Communications Server 2007 and Office Communicator, will include call center apps, telephony and mobile access systems, and data networking infrastructure.

Microsoft announced a flurry of partnerships with companies such as Mitel, Motorola, and Siemens in June when first discussing its unified communications road map, but none is nearly as far-reaching as the alliance with Nortel, since the others aren't codeveloping products.

For Nortel, the Microsoft deal is another piece of evidence that Nortel CEO Mike Zafirovski, who took over in November, is repositioning the company, including emphasizing IP telephony. Nortel has its own unified communications product, which it will continue developing, but it lacks the intuitive, friendly interfaces that other telephone equipment competitors such as Cisco and Avaya have. "This will allow us quite often to lead as opposed to playing defense," Zafirovski says. The deal puts Microsoft-Nortel in the game.