Microsoft's Newest Effort Targets Cisco

Microsoft's Newest Effort Targets Cisco

Microsoft and Cisco Systems, leaders in their main markets who have long touted mutual collaboration, are heading to battle on a field called unified communications.

Microsoft is moving into Cisco's turf with Tuesday's planned unveiling of software for unified communications. Analysts say Cisco leads the industry in market share and breadth of offerings, including its own software.

Microsoft's Office Communications Server 2007 will make communication more simple and seamless among different devices and tools, including phones, computers, e-mails and instant messages, says Kim Akers, general manager of Microsoft's unified communications group.

"It's certainly significant that Microsoft is now entering the business," said Irwin Lazar, an analyst with Nemertes Research. "It definitely changes the dynamics of the market. There's nowhere for Microsoft to go from here but up."

Analysts doubt Microsoft will swipe much market share from Cisco at first, but they say it could grab a more substantial piece in the years to come.

The good news for both, as well as for rivals Nortel NT and Avaya, is that the market is on a roll. Revenue should rise to $17 billion in 2011 from $4 billion-plus this year, says IDC.

"This is clearly a case of a rising tide lifts all boats," said IDC analyst Abner Germanow.

Improving Communication

Unified communications encompasses many areas. Companies and other enterprises are using it to tether together the many different ways people communicate, while adding tools to speed up the communication process. The technology can combine mobile devices, e-mails, instant messaging, video conferencing, voice services, computer applications and more. For example, unified communications can direct a call to where a person is at the moment, routing it to a landline in a cubicle or to a cell phone in a car. And callers might use a mouse to make calls with a simple click on a PC screen.

Customers should get quicker communications, saving time and money, and maybe more. If a patient needing a translator arrived at a hospital, a nurse could use the technology to locate the right person based on language and health care skills.

Much of this technology stems from the rise of Internet protocol-based networks made popular by Cisco. IP networks enable better communication -- be it voice, text or video -- among different devices.

In recent years, Cisco has jumped into the telephony market with its hardware that directs calls via the Internet, or what's called voice over Internet protocol. The company also has expanded into software, with collaboration services such as instant messaging. And this year, Cisco spent $3.2 billion to buy WebEx, a leader in Web conferencing.

To provide e-mail services, though, Cisco partners with other industry players such as IBM and Microsoft. Lazar says Cisco at some point 15uld offer its own e-mail service.

Cisco, the leader in networking gear, sees unified communications as an extension of those networks.

Software leader Microsoft, though, says unified communications is all about the software. But unlike Cisco, it's not offering the hardware part of the equation, relying on vendor partners for those products.

The shift to communications systems based on software instead of hardware will be as dramatic as the shift from mainframe computers to PCs, Microsoft says. Software can handle the chores of merging all those different ways to communicate.

"You can always have the software deal with that complexity," Akers said.

But unified communications won't be a particularly easy market for Cisco or Microsoft, some say.

"Both, I would say, are relatively unproven in the areas that they're trying to expand into," said Mark Cortner, an analyst with the Burton Group.

On the one hand, Cisco lacks the 20-plus years of experience in creating software that's simple and easy to use. But Microsoft has faced challenges with the kind of reliability people want with, say, phone calls, he says.

"They do have some performance issues," Cortner said.

Analyst Lazar says corporate customers won't automatically go with Microsoft in this arena, especially with voice services. He says it will take two or three years for Microsoft to start to make serious inroads.

Keeping It Pleasant

Both companies might have the answer to this market, some say.

"You have Microsoft saying unified communications is a software problem and then you have Cisco saying no, it's a network problem," Germanow said. "The fact of the matter is, it's both."

He says Microsoft's entry benefits Cisco, as more networking gear such as routers and switches must be used to get data from one communication device to the next.

Cisco has made a point 15f not sounding overly aggressive in the face of Microsoft's arrival, says Alan Cohen, vice president of enterprise solutions at Cisco.

"We are the market leader in several categories," Cohen said. "(Microsoft's entry) stimulates a lot of interest. That's very good."

He also says Cisco typically competes with huge players, because Cisco doesn't mess around with small or sluggish markets.

In late August, Chief Executives John Chambers of Cisco and Steve Ballmer of Microsoft did a Webcast to assure the market that their unified communications systems would work well together. The impetus for the Webcast came from Chambers.

Yet despite the pleasantries, the two companies didn't become leaders by always playing nice.

"I don't think Microsoft and Cisco have a long resume of making peace with people who challenge them," Cortner said.