Microsoft, Nortel Partner on Unified Communications Push

The two companies said they had agreed to a four-year alliance that will make Nortel a strategic partner for the software giant as it pushes unified-communications tools to enterprises. Nortel will also perform some integration work for customers of both companies.

The Grand Plan

Products from the partnership will be aimed at three markets: large enterprises; the mobile computing and communications market; and wire-line phone carriers. The deal also calls for cross-licensing of some patented technologies.

"We are investing together because the communications industry is at an inflection point," Microsoft CEO Steve Ballmer said. "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."

Nortel CEO Mike Zafirovski said the partnership teams two firms that have "each led fundamental transformations in their own market."

For Microsoft, the Nortel deal is the latest step in a larger strategy to use partners as a way of propagating its software tools in the communications space. Microsoft envisions workers communicating directly from within its productivity applications -- such as Word and Excel -- but will need help from third party vendors to make that vision a reality.

Call Me -- Via Outlook

Last month, Microsoft announced a slew of smaller-scale partnerships aimed at the same goal of integration of its products in communications tools. Microsoft said it would work through strategic alliances with Polycom, LG-Nortel and Thomson Telecom, among others, to develop and market versions of IP-enabled business desktop phones that extend the communications tools in the software giant's Office productivity suite well beyond the PC.

The scale of the Nortel deal will likely be far larger, with Zafirovski saying the partners believe Nortel alone can "capture well beyond US$1 billion in new revenue" with the partnership expanding to include professional services, voice products and applications." Microsoft has said the overall market for unified communications solutions could be worth US$40 billion within five years.

Microsoft and Nortel are banking on office users' familiarity with Windows products to form the foundation of a broader suite of communications tools that unify voice, instant messaging, e-mail , mobile calling and messaging and video conferencing. In fact, one of Microsoft's key technology centerpieces of the push is a 360-degree Web camera meant to enable more interactive remote meetings.

There are plenty of rivals vying for the same market space, however, including Nortel rival Cisco Systems (Nasdaq: CSCO) and Microsoft competitor IBM (NYSE: IBM) , which announced last month plans to make Lotus Notes a communications-capable application.

Battle Joined

Microsoft and IBM in particular are "locked in a fierce battle for market and mind share in the collaboration market," said Gartner (NYSE: IT) analyst Jeffrey Mann.

IBM has recognized with its recent product announcements that Microsoft is the dominant office productivity application maker and is starting to create products that will work with them, allowing enterprises to have more choices for opening up their applications to become communications and collaborations tools.

Still, the long-term trends seem to favor more integration, giving Microsoft a significant advantage. "Microsoft controls the core with its software and now it's looking to build onto that with partners and other moves," Mann added.

Nortel was seen by many observers as the immediate winner, with Zafirovsky's ongoing efforts to turnaround the company getting a boost from linking with such a high-profile and powerful partner.