Nortel and Microsoft Take Aim at Cisco

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Zafirovski hopes that the centers will help grow Nortel's services business, he said during a Jan. 17 conference call related to the Microsoft news.

Proliferation of Products

Warring camps are already forming left and right. Last October, Avaya and routers maker Juniper (JNPR) extended their longstanding partnership to work on a branch-networking product, integrating a router with voice communications. That product will become available in the first quarter of 2007. Then there's the camp of Nortel and Microsoft, which also aims to introduce a similar product this year. Already, Nortel-Microsoft claim to have "dozens of new customers and hundreds in the pipeline" for the new products the duo has produced, Zafirovski said during the conference call.

Cisco claims it's had many of the capabilities Nortel and Microsoft brag of, such as integration with the Microsoft Exchange server, for years. So does Avaya. Yet Nortel claims it will offer tighter integration with Microsoft Office and other applications. And these are just the first products to come out of the partnership.

The Microsoft-Nortel partnership, and others like it, will likely spawn a barrage of new products in the field. Already, Cisco plans to unveil some unified communications products, on which it's staying mum, this quarter, says Barry O'Sullivan, vice-president for IP communications at Cisco.

Microsoft Covers All Bases

The battle for unified communication could also result in substantial price drops for related gear and software. While prices could fall only some 2% this year, in 2008 they could dip 8%, figures Susan Eustis, president of WinterGreen Research. On the plus side, the lower prices could help make the capability more attractive to additional corporate buyers—and expand the market. Today, only some 5% of corporate phones are capable of unified communication, according to consultancy Dell'Oro Group. And the market has been slow to take off: "Everyone is interested in unified communications, but demand is not there; companies are still trying to figure out their return on investment," says Alan Weckel, an analyst with Dell'Oro.

One sure winner? Microsoft, which has formed partnerships with nearly every player in this market (see BusinessWeek.com, 07/19/06, "Microsoft Tries to Find Its Voice"). While the Redmond (Wash.) giant appears to be tight with Nortel, it's also a partner of Cisco's, for instance. "We've gotten a joint roadmap with Microsoft, we meet once a month," says O'Sullivan. What remains to be seen: whether that will be enough for Cisco to stay ahead.

Kharif is a senior writer for BusinessWeek.com in Portland, Ore.