Microsoft and Nortel to co-develop IP-PBX

Microsoft and Nortel announced an alliance as part of Microsoft's overall unified communications push. Nortel said it expects more than $1 billion in new revenue over the life of the four-year pact, under which the companies will work together on research and development and partner on sales and marketing. I was on their streaming "virtual press conference", which hosted both Microsoft's and Nortel's CEOs. Both CEOs participating certainly demonstrated their committment to this major partnership.

Their goal is to combine Nortel's network quality and reliability with Microsoft software's ease of use and to accelerate the availability of unified communications. "Nortel and Microsoft have each led fundamental transformations in their own market - Nortel's digital innovation and Microsoft's software on every desktop," said Mike Zafirovski, president and CEO of Nortel. "By combining our unique strengths, Microsoft and Nortel will accelerate the delivery of unified communications - delivering to our customers a higher-quality user experience, with greater reliability and lower total cost of ownership. That's where we can make a real difference."

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

"This is a gutsy play for Nortel - accelerating the move of our voice technology into software and working with the world's software leader as part of our broader business strategy to transform the company into a software and services leader," Zafirovski said. "From this transaction, we believe we can capture well beyond $1 billion in new revenue, ramping up with increased momentum through 2009 via professional services, voice products and applications, as well as data pull-through in the enterprise."

"Unified communications will drive the next major advance in individual, team and organizational productivity in today's 24x7, always-connected and increasingly mobile work environment," said Jeff Raikes, president of the Business Division at Microsoft. "Our software-based approach puts people at the center of communications through a single identity across e-mail, voice mail, voice over Internet protocol (VoIP) call processing, instant messaging and video, and intuitively embeds communications capabilities into people's everyday work processes, including the Microsoft Office system and third-party software applications."

Microsoft and Nortel said that under the deal, which has an option to be extended, that they 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. Microsoft and Nortel will build a joint channel ecosystem using both companies' systems integrator, reseller, and service provider relationships.

Microsoft has been looking for a hardware partner to go up against Cisco and their unified communications platform. Certainly Microsoft has chosen a strong hardware partner to offer a comprehensive unified communications suite that includes VoIP, presence, mobile, and other functionality. It's worth mentioning however that Nortel has suffered from an accounting scandal in 2004 and the telecom downturn that started in 2001. It remains to be seen if Nortel's Zafirovski can turn around one of the largest telecom equipment manufacturers in the world when cheaper, open-source solutions such as Asterisk are nipping at the heels of all the IP-PBX manufacturers.

Shares of Nortel on the New York Stock Exchange rose >5% to above $2.