Earlier today, Microsoft and Nortel announced a strategic alliance in unified communications. It’s a significant partnerships for multiple reasons, a few of which I will now discuss.
First, it is important to understand that Microsoft’s ultimate goal in unified communications is to have its software bring together presence-based communications (email, IM, telephony, plus multimedia conferencing) on the computer desktop. Microsoft looks askance at communications silos in the enterprise, especially those that it doesn’t own completely. It takes particular offense at what it regards at the unnatural dichotomy between the office phone and the office PC. It practically cringes at this chasm of functionality.
Microsoft’s goal is to own the entire desk, never mind the computing desktop, and it must be topple the office telephone to do so. You see, the hardware-based telephone, even if it is an IP phone, is sold and maintained by other vendors, increasingly through an IP PBX, and that foothold gives those vendors room for further account expansion. That’s revenue that Microsoft doesn’t generate, and growth that it cannot deliver to shareholders. The problem is, Microsoft isn’t a PBX vendor, and it doesn’t possess the credibility, expertise, or market mandate — at least at this point — to lay claim to the province of enterprise telephony.
The vendor that concerns Microsoft the most in that regard is Cisco Systems, which leads in the market for IP PBXes and IP phones and also provides sophisticated multimedia conferencing software and associated infrastructure. Cisco could conceivably control a lot of the infrastructure, services, and software that enable and facilitate the next generation of unified communications. Cisco and Microsoft maintain an uneasy relationship marked by pragmatic cooperation and future strategic competition.
Understandably, Cisco worries Nortel just as much as it concerns Micrsooft.
After years of self-inflicted accounting scandals and the enormous devastation that it incurred when the telecommunications boom became a cataclysmic bust, Nortel needs newfound credibility and market legitimacy. With its telecommunications customers doing a morose dance of consolidation and retrenchment, Nortel must elsewhere for growth. Naturally, it looks to the enterprise, where it has had nearly as many stops and starts as 3Com. Unfortunately, when it looks to enterprise, it sees Cisco, the network behemoth when it comes to the provision of networking infrastructure, from core switching through to the wiring closet and the VoIP PBX. Nortel, particularly in its diminished conditions, isn’t up for that battle — not on its own, anyway. But with Microsoft, its thinking goes, maybe Nortel has a change to tap into a significant new revenue stream, ensuring growth and a new beginning for its tattered stock.
Nortel was desperate, and Microsoft was looking for a telecommunications-equipment vendor who would give it the VoIP credibility that it needs to win the hearts and minds of those enterprise-communications guardians who stand in the way of the all-Windows, all-Office, all-the-time vision of integrated unified communications that Microsoft envisions.
Hence we have this alliance. Let’s look at components of the agreement, excerpted from a joint press release that appears on Nortel’s website:
• Strategic alliance
• 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.
• Go-to-market initiatives
• 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.
Reading between the lines, Nortel has become a systems-integration agent for the deployment of Microsoft-based unified communications into the enterprise and beyond. Nortel will provide the technical expertise to ensure backward compatibility with customers’ existing products and technologies as well execute on a blueprint for an all-Microsoft, softphone-based unified-communicatoins paradigm of the future.
Nortel believes it can derive $1 billion from this partnership through 2009, taking into account revenue from professional services, voice products and applications, and other data-based integrations. Maybe that’s true, but it’s betting on a lot of help, on many levels, from Redmond.