Microsoft, Nortel Deal Good for Channel Partners

The newly announced unified communications deal between Microsoft Corp. and Nortel Networks Ltd. bodes well for channel partners, especially systems integrators, resellers and independent software vendors.

Microsoft on Tuesday announced it is getting into the voice business with the help of equipment maker Nortel Networks; together, the companies will deliver unified voice, e-mail and video communications to businesses. The pact dubbed the Innovative Communications Alliance calls on the companies to run traditional business phone systems on software platforms.

The market for unified communications is just beginning to emerge and we think its a big opportunity, upwards of $40 billion, where software will be a key driver, said Jeff Raikes, president of the Microsoft Business Division, on Microsofts Web site. Core to our strategy is software and our partner channel. We will create a broad software platform and a complete ecosystem.

The partnership means indirect channel salespeople will be able to help end users tie together all of their communications, from office and home numbers to fax numbers, mobile phones, IM addresses and e-mail accounts.

The workforce is global, it’s moving 24 hours a day, seven days a week, there are many changes in the underlying technology infrastructure for PC-based communications and phone-based communications with new, IP systems displacing analog systems, Raikes explained. Companies really want to derive new value from the infrastructure investments they’re making.

Terms of the Microsoft-Nortel deal were not disclosed, but Microsoft executives said they are paying Nortel for intellectual property. Nortel President and CEO Mike Zafirovski said his company expects to make up to $1 billion on the deal from professional services and voice products revenue. That would be a boon for the company, which still is recovering from highly publicized financial problems and management upheavals.

The agreement is good for four years. Nortel and Microsoft also will conduct joint R&D and marketing, and Canada-based Nortel said it is starting a new division dedicated to the unified communications initiative. Microsoft Business Division President Jeff Raikes, on the companys Web site, said Nortel will colocate development resources with Microsofts unified communications team in Redmond.

Meanwhile, Zafirovski, in a statement, called the agreement a gutsy play for Nortel accelerating the move of our voice technology into software and working with the world’s software leader as part of our broader business strategy to transform the company into a software and services leader.”

The Nortel-Microsoft combination places the companies squarely against competitors such as Cisco Systems Inc. Cisco has been specializing in unified communications for several years, capitalizing on SMBs and enterprises demands for cheaper communications resources. IBM Corp. also has been active in this space.

Microsoft stocks on Tuesday closed 26 cents higher than the previous day, at $22.74. Nortel stocks closed at $2.09, up 12 cents.

This is the kind of deal that seems to make a lot of sense for both Nortel and Microsoft, said telecom analyst Jeff Kagan. These are two historically very strong companies, who suddenly find themselves having to battle new competitive forces and are both looking for new services to offer.

Cisco Systems Inc. www.cisco.com
IBM Corp. www.ibm.com
Microsoft Corp. www.microsoft.com
Nortel Networks Ltd. www.nortel.com