In Microsoft partnership, Nortel marries up

It's been a difficult time for Nortel and its customers since the optical bubble burst in 2000. For six years there have been financial scandals, poor operating performance, restatement of financials, multiple changes of executive management, Securities and Exchange Commission investigations, criminal allegations, layoffs of more than 70,000 employees, lost market share, lack of focus, selling of assets and more.

Now Nortel is looking to change its fortunes through a strategic partnership with Microsoft, called the Innovative Communications Alliance (ICA).

In Nortel's 100-year history, it has never partnered with another firm on the same scale it plans with Microsoft. Nortel will end the life of most of its enterprise IP telephony products over the next three to four years as it aligns with Microsoft's unified communications strategy. Microsoft will get a partner that knows voice communications and has an installed base of both enterprise and service providers in which to channel unified communications to the market, while Nortel will get sorely needed credibility, an infusion of cash and a strategy.

In the short term, the ICA is a big marketing and vision win. Microsoft has given Nortel customers something to cheer about. ICA finally gives Nortel a vision, strategy and road map in which investment will be guided with a hugely credible partner. In short, Nortel married up.

Microsoft also has given Nortel customers clarity. The prospect of Nortel selling its enterprise business is shelved for the foreseeable future, putting that fear to bed for Nortel customers. Nortel customers can wrap their minds and, potentially, their wallets around a bold unified communications strategy that promises to improve business process efficiency by embedding communications deeply into business- and office-productivity applications. Nortel customers are taking this seriously, as the company's ability to execute has been catapulted because of Microsoft.

The long-term prospects of ICA are less clear. As I have written in the Lippis Report, unified communications doesn't get interesting until next summer, a long time in our industry. Part of ICA is that Nortel will provide professional services to envision, design and implement IP telephony solutions, but its professional services organization is just ramping up and can't compete with Avaya and Siemens.

There are many other issues, including the fate of Nortel's desktop collaboration and messaging products, such as CallPilot and the Multi-Media Communications Server, as well as its Communications Server family and Business Communications Manager.

Further, how will Microsoft and Nortel work together in the field? Who will open the door and close the deal? How does Nortel sell today's solutions and products while simultaneously selling a future vision that may not include its current products? What's the migration plan?

Sorting all this out will take time. Microsoft and Nortel may want to take a short honeymoon and get right to business. For more information, listen to my podcast in which Zeus Kerravala of the Yankee Group joins me to discuss the ICA deal.

Lippis publishes the Lippis Report newsletter, a resource for network and IT business decision makers. Get your free subscription at www.lippis.com. He can be reached at nick@lippis.com.

Copyright © 2006 IDG Communications, Inc.

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