The Real Unified Communications Relationship between Microsoft and Nortel

 

With all the IP communications industry focus on ITEXPO last week it was difficult to get a chance to share my thoughts on happenings from the prior week – especially between Nortel and Microsoft.

 

I really had a great time in New York listening to Steve Ballmer the CEO of Microsoft and Mike Zafirovski the CEO of Nortel talk about their collaborative Unified Communications strategy. What you may not know because you weren’t at the press conference is just how passionate Steve Ballmer is about communications. He is serious about our market and this could be a very good thing.

 

When I asked Steve about educating the market about Unified communications he got animated and his eyes lit up. He said, “When you show people this stuff, they get it. It isn’t something abstract like SOA.” I may have paraphrased a bit but that was the gist of his comments.

 

What is even more amazing about this news is Steve is driving much of the communications vision personally. There will be joint development and demo centers around the world for example. My contacts tell me there are divisions under Ballmer that don’t have the autonomy you would think they have. Steve is calling the shots. For example there are some within Microsoft who think Interactive Intelligence’s Vonexus product line or Mitel’s offerings are currently a better fit for the Redmond-based company. The problem is these other IP-PBX companies can only go so far within Microsoft because they bump up against a “Ballmer ceiling.”

 

I asked a few people why Microsoft chose Nortel and the consensus was that Nortel was willing to work collaboratively with the software giant. The implication was that Cisco and Avaya weren’t as interested.

 

I can see Cisco having less of a need for a Microsoft partnership as they can offer similar solutions without the need for a partner. At Avaya, perhaps the management shakeup last year led to a void which Nortel took advantage of. Time will tell if Avaya made a huge error by not becoming the primary Microsoft partner. History may look back on this as a terrible mistake by the New Jersey-based company but since the management was changing around the time of the negotiations there may be no single person to assign blame to.

 

In addition Zafirovski and Ballmer seem to be close friends as they worked together when the former was at Motorola. The duo had strong chemistry onstage and their speeches intertwined in a sort of verbal choreography. Picture two backup singers in a music video (for the sake of argument we will say Janet Jackson) using words instead of dance moves and you’ll get the idea.

 

Ballmer’s enthusiasm could do wonders for the communications market as there is so much potential to link corporate communications to Xbox-based home communications servers and Microsoft-based smart phones. The ability to use Microsoft development tools to build communications applications is huge news and we can likely expect communications frameworks from Redmond soon. These frameworks will probably abstract much of the communications infrastructure allowing developers to build robust enterprise-class communications solutions.

 

Another reason Nortel makes sense as a partner for Microsoft is that Nortel’s service provider division allows joint unified communications solutions between Microsoft and Nortel to be scaled to hundreds of thousands of ports so as to be provided as a hosted solution.

 

Avaya and Cisco would be poor partners from this perspective. In fact this could be the best explanation for why Microsoft chose Nortel.

 

Back in March of 2002 I wrote an article where questioned why Lucent would spin off Avaya. My thinking was twofold. Joint development is a powerful force in technology and a large campus PBX is not unlike a carrier switch. In addition the enterprise and service provider markets tend to counterbalance each other’s spending. What I did not predict at the time was that not having a service provider division could be a liability for Avaya. Time will tell if this is the case.

 

Alcatel-Lucent could have been a partner for this initiative as Alcatel plays in the enterprise PBX space. The problem is Alcatel is virtually unknown in the US and in the domestic enterprise space they have minimal share.

 

But if Microsoft continues to really spend on communications initiatives as Ballmer threatens to do, what can the smaller PBX vendors expect to see happening to their market share. I admit to being biased but I think the market has nowhere to go but up – for almost all players.

 

As long as IP-PBX makers are innovating and giving customers solutions they want, they will be in good shape. My advice to the small guys is stay focused on being leading edge and don’t lose sight of your customer’s needs and wants. Be sure to have compelling reasons why your solutions still make sense in a world recently dominated by Microsoft and Nortel news.

 

Also, do not stop branding and marketing. You need to be very visible in your key target market(s) or you will get steamrolled.

 

What is perhaps most amazing is that Interactive Intelligence’s Vonexus division integrates more seamlessly with Microsoft products than anything Nortel (or anyone) currently has. One would imagine this unified communications relationship should have been with Interactive Intelligence. But the reason I3 was overlooked was probably because they aren’t as large as Nortel and they don’t have as good a relationship with Ballmer.

 

But I imagine I3 will leverage the Microsoft/Nortel relationship to boost sales by explaining they are years ahead of the larger, slower players. In fact I have witnessed them do this successfully over the past six months at seminars around the US at last week’s ITEXPO where their booth was mobbed for three straight days.

 

But it will be interesting to see how much selling of unified communications products will be done via Microsoft channels. If SMEs start to buy more communications solutions through Microsoft resellers and these products are all based on Nortel’s phone systems then other PBX vendors may want to start buying their aspirin at Costco.

 

It is unclear how effective the Microsoft channel will be in selling telecom solutions. I am sure some resellers will excel in telecom but most will probably not.

 

I mentioned this new relationship puts Nortel on an equal footing with Cisco and Avaya but it is possible it actually gives Nortel an advantage. This could be good for the company as there are many talented people at Nortel who were brought down by the past senior management scandal. It seems like the Canadian-based communications equipment company finally has an opportunity to continue a growth curve that was interrupted a few years back by a financial mess.

 

So I think the result of this new relationship is Nortel will gain more and more share. It is inevitable. They will likely take most of it from Avaya followed by Cisco. The smaller players may not see this relationship hurting them for some time as it will take years for lower end products to trickle down the pipeline.

 

In fact if this new UC initiative is even marginally successful, communications solutions will become more valuable and prices per seat at corporations will increase significantly. So while Nortel gains share, all vendors will likely generate higher average revenue per system/seat sold.

 

Of course there is always the potential that Microsoft will not be so successful with this initiative. After all, their CRM solutions are not setting the world on fire. But then again Steve Ballmer never gave CRM the TLC unified communications is now receiving. As long as Ballmer is at the helm, we will see the unified communications market grow rapidly and we will see Nortel riding the potential tsunami-sized wave created by this new partnership.

 

Oh and by the way, Microsoft’s speech, CRM and mobile device solutions will ride this wave as well.

 

I advise Cisco and Avaya to get on the horn with Oracle and SAP before you finish reading this article and get a similar deal done quickly. My experience in this space over the past 25 years (has it been that long?!) tells me we are seeing a major shift of power in communications towards Nortel and Microsoft – unless of course the other major players counteract this initiative quickly.

 

Some of you who are most experienced in communications will point out these unified communications technologies aren’t new and subsequently I am making much ado about nothing. While technically you are correct – you are dead wrong from a marketing perspective. Remember, Skype’s success is not its technology (much of which they owe to Global IP Solutions) but its marketing. I used products like Skype years before there was a Skype. That is what inspired me to launch Internet Telephony Magazine in late 1997! Ditto for Vonage – It was Jeff Citron’s marketing genius… His ability to acquire capital and spend it faster than he received it — that made Vonage a household name.

 

Expect ongoing coverage of the unified communications market here on TMCnet as well as TMC’s print publications. In addition there will be significant focus on these developments at Internet Telephony Conference & Expo West this September 10-12, 2007 at the Los Angeles Convention center in California.