Microsoft partnership could bring Nortel $1 billion

Microsoft and Nortel Tuesday announced a four-year alliance to deliver unified messaging products and pursue what they are calling a “software-centric vision for communications.”

The cornerstone of the alliance will be voice-over IP networking products, said Microsoft CEO Steve Ballmer during a teleconference, but the two companies also plan on delivering a product set that will allow customers to experience unified communications.

Nortel CEO Mike Zafirovski said the alliance represents $1 billion in new revenue for Nortel alone.

Ballmer was also quick to identify to size of the opportunity. “There are hundreds of millions of people who will be getting a new communications experience over the next four or five years. If we can’t make that into a gigantic opportunity for Microsoft and for Nortel, shame on us,” he said.

Zafirovski said the idea of unified communications has “offered a tantalizing promise” for some time. He stressed that the companies will offer software-driven products that can be built into an existing networking infrastructure, negating the “rip and replace” approach that has often made telephony upgrades expensive and cumbersome.

“A world where computers, phone devices and PDAs converge into a single easy-to-use platform that’s easily and intuitively tied together — Nortel and Microsoft share this vision,” he said.

According to Ballmer, five new or upgraded products will begin shipping by this time next year. He said they will cover the gamut from SMB-level to enterprise. Among the eventual offerings will be: VoIP, call processing, unified messaging, conferencing technology, and new telephony devices for mobile and desktop phones.

“We were brainstorming . . . on some of the ways we can get out really make vivid for people that this isn’t just about what goes on in the data centre or the network operations centre,” he said.

Redmond, Wash.-based Microsoft set the stage for its unified communications strategy last month when it announcd a roadmap that includes products like Microsoft Office RoundTable, a 360-degree camera device which could be used as a videoconferencing technology.

The company’s partnership with Nortel has been dubbed the Innovative Communications Alliance. As part of the agreement, Nortel will create a dedicated systems integration division for applications deployment. Nortel and Microsoft will also form joint product development and sales and marketing teams, and cross-license intellectual property.

While Nortel may have the services expertise to manage customer engagements, the alliance may bring new opportunities for Microsoft partners, said Ballmer.

“This is right in the mainstream of the bulk of our partner channel. I think it will be good for our partner channel . . . to have these kind of services being led by Nortel,” he said.

The alliance is also a tremendous opportunity for Nortel itself, said Eduardo Kibel, a networking analyst in the Toronto office of Frost and Sullivan. After years of layoffs and investigations into alleged accounting irregularities, the partnership with Microsoft could give the struggling Brampton, Ont.-based network equipment provider a new lease on life.

The VoIP market is particularly robust, said Kibel, and is worth an estimated $80 billion globally over the next five years, when equipment and services are both factored in.

“There is a bit of restraint from a few people to adopt it or to actually test it, but the other side of the coin . . . is that a lot of people are very happy with (VoIP) service,” he said.

Companies want the luxury of moving between mobile and land line networks, and the ability to communicate with employees without worrying about the hand-over issues between the two, said Kibel. Together, Microsoft and Nortel may be able to take advantage of that potential market.\

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