“Â with this alliance agreement … I think you can clearly say that Microsoft with Nortel is in the business not just of unified communications, but in the business of VOIP”
Microsoft CEO Steve Ballmer
I must have had a half dozen people (including my Mum!) draw my attention to the Microsoft (MSFT) / Nortel (NT) agreement signed yesterday.Â I didn’t think much of it after reading the Jeff Raike’s Q&A which Microsoft published.Â Â Raikes appeared to positionÂ the agreementÂ as initially an R&D arrangement, with go to market strategy to be developed later. However, as details came out it was apparent that it was much larger.Â My initial assessment was just plain wrong.Â
The companiesÂ are entering intoÂ a four year strategic alliance.Â Â Nortel will be Microsoftâ€™s strategic partner for advanced unified communications solutions and systems integration.Â The two companies will form the “Innovative Communications Alliance” as a go-to-market vehicle, andÂ Microsoft and Nortel will deploy the otherâ€™s technologies in their enterprise networks.
As Microsoft’s strategic systems integration partner, Nortel hopes to generate new revenue through service offerings such as convergence planning, integration, optimization, monitoring and managed services.
The more interesting component in this agreement, in my opinion, is the commitment to do joint product development.Â The companies will form joint teams to collaborate on product development that spans enterprise, mobile and wireline carrier solutions.Â They willÂ cross-licenseÂ patents, and Nortel will deliver solutions that complement Microsoftâ€™s unified communications platform, including enterprise contact center applications, mission-critical telephony functions, advanced mobility capabilities and data networking infrastructure.Â Nortel becomes a very important software development partner in Microsoft’s ecosystem,Â accelerating the development of that ecosystem and its valueÂ toÂ their joint customers.Â At the same time, MicrosoftÂ intends to continue the development of its Dynamics product line, which, with the addition of voice,Â may become very compellingÂ components of these joint solutions.
They will jointly sell the solutions, from either companies sales force.Â They will also build channels with systems integrators, resellers, and service provider relationships.Â They plan to target a range of customers, including small and medium-sized business, large corporations and service providers.
With the exception of Microsoft’s original partnership with IBM, thereÂ has been only one other timeÂ in Microsoft’s history, that I can recall, thatÂ the company has struck a similar agreeement.Â That was the 1993 Microsoft-CompaqÂ Frontline Partnership, which still exists today, 13 years later.Â Â That agreement saw Compaq and Microsoft undertake joint product development, build channels, and mutually deploy each others products.Â Â At the time, Microsoft got a powerful OEM partner, andÂ a huge boost to its nascent Solution Provider channel with Compaq’s backing.Â Compaq, who wanted to target the mini-computer market with its enterprise servers, got aÂ committed development and channel partner.Â The fact that the agreement still stands today testifies to its enduringÂ value to both companies.Â
You have to admit that the Compaq partnership, and yesterday’s Nortel / Microsoft Alliance, are eerily similar:
- The companies will develop channels together.
- The companies will jointly develop products.
- The companies will deploy each others products internally.
Nortel, which has struggled to bring it’s unified communications products to market (and if you’ve ever experienced the MC5200’s wretched desktop software, you will understand why), gains an experienced, committed and resource rich software development partner.Â Developing end user software is hard, and Nortel appears to have recognized that, after several abortive attempts to do it on their own.Â Their product development efforts are going to be tied to the most powerful cash generation engine on the planet — the Windows/Office franchise.Â That can only help.
Microsoft, who has lacked credibility in the communications marketplace, gains one of the oldest and best known names in communications as a partner.Â They gain access to a new channel to market, the importance of which cannot be understated.Â And, they gain access to a large existing customer base.
Together, the two companiesÂ are strong enough toÂ go after Cisco (CSCO), and that’s where the money is in IP communications today.
Just as the MicrosoftÂ / Compaq agreement wasn’t exclusive, neither does this one appear to be.Â Â You wouldn’t expect it to be.Â From Microsoft’s point of view, this agreement will accelerateÂ the creation ofÂ the ecosystem of software development partners that are going to help make Microsoft’s unified communications platform a success.Â They will want to spread that success to other hardware partners.Â Despite not being the exclusive partner, Nortel can claim to be the most favoured partner, which is a great place to be.
This is aÂ very smart, very savvy move for both companies.Â In particular, congratulations are dueÂ to Mike Zafirovski.Â This agreement won’tÂ move Nortel’s stock today, but over the long term and well executed,Â it has the potential to restore Nortel’s fortunes in the market.
Note to the Microsoft PR team:Â I am not the only person who dismissed the initial announcement as unimportant because the messages were incomprehensible.Â See Bruce Stewart, Rob Hyndman, andÂ Zoli Erdos.