In Discussion with Chambers and Ballmer

The chief executives of Microsoft and Cisco Systems flesh out interoperability and vigorous—yet friendly—competition, and how the end user will benefit

Just as the rhetoric between Microsoft (MSFT) and Cisco Systems (CSCO) seemed to be heating up, the chief executives at the two tech titans announced plans to tone down the acrimony. Both companies, powerhouses through the 1990s, have seen growth slow as their core markets have matured. But both companies have found themselves butting heads as they move into similar markets, such as Web conferencing, in search of new growth engines (see BusinessWeek.com, 5/21/07, "Microsoft and Cisco: Can They Still Be Pals?"). In pursuit of these new businesses, executives at the companies have traded barbs, to hawk their own products and denigrate the competition.

But Microsoft CEO Steven Ballmer and Cisco CEO John Chambers acknowledged during a New York press event that customers haven't really appreciated the show. Consumers simply want to know that if they use Microsoft's software that it will continue to work with Cisco's networking products. So the companies agreed to work together in 10 areas where their technologies overlap. While they'll still compete vigorously, the CEOs went out of their way to assure customers that they won't run into problems down the road if they buy products from both companies today.

Ballmer and Chambers spoke after the announcement with BusinessWeek senior writers Peter Burrows and Steve Hamm, and Seattle bureau chief Jay Greene. An edited transcript of their conversation follows.

Cisco and Microsoft both have detailed visions about the communications market. How do they diverge?

Chambers: Well, let me go back to where we're the same, because I think that's the key takeaway here. If we were dramatically different in our vision of where the industry is going to go, and where we thought the opportunities were, then we wouldn't be announcing a partnership today.

The most basic element is you're seeing the second productivity wave of the Internet. One occurred from the early '90s through about 2005, and you saw that productivity climb the entire time. Then it slowed the last couple years. I think you're now starting on the next big wave. And it will be enabled by IT technology. There's no discussion about that. It will be any device, any content. You're going to operate in whatever format you're most comfortable. It is going to require industry leaders working together where appropriate. And when you compete, it requires you to interoperate, and that's what the customers can expect—in fact, I would actually argue, demand—of you.

You both talked about these different scenarios for where computing is going to be used, but computing as we've had it so far has been pretty complicated for consumers, and also tough for the [chief information officer]. When you start to add data, voice, video, and mobility, how are you going to make that simple?

Ballmer: We will make a more revolutionary change for the CIO by moving more things to the Internet. That is, more of the things that CIOs will do, instead of doing themselves, they will subscribe to a service that comes to them from the Internet.