Remarks by Steve Ballmer, CEO, Microsoft
Anoop Gupta, Vice President, Unified Communications, Microsoft
Mike Zafirovski, President, CEO, Nortel
Steve Slattery, President, Enterprise Solutions, Nortel
Dietmar Wendt, President, Global Services, Nortel
Microsoft-Nortel Press Conference
July 18, 2006
ANOOP GUPTA: Hello, I’m Anoop Gupta. I’m Microsoft’s vice president for the Unified Communications Group. Following our Unified Communications announcement in San Francisco on June 26, it’s my pleasure to welcome you today to a very important next step in delivering unified communications to our customers around the world. Today, we are announcing the formation of the Innovative Communications Alliance with Nortel. The Alliance will enable us to accelerate the delivery of our unified communications vision to help our customers realize the significant benefit that will come from seamlessly integrating all modes of communication. We will take the next 30 minutes or so to review the details of this alliance, and talk about how it fits with Nortel’s and Microsoft’s overall mission. There will be about 15 minutes after the formal remarks for questions.
So, with that, let me introduce our friends from Nortel, starting with Dietmar Wendt. He is the president of Global Services for Nortel; Steve Slattery, who is the president of Enterprise Solutions for Nortel; Mike Zafirovski, who is the CEO of Nortel.
To kick things off, I will ask Microsoft’s CEO Steve Ballmer to come up to the podium. Steve. (Applause.)
STEVE BALLMER: Well, thanks, Anoop. And let me add my welcome to all of us joining us here today, as well as, of course, to Mike and the Nortel team. We’re very excited to be here. This is a very exciting day for Microsoft, and I think for customers. I say this because today the world of communications really is changed. We began on June 26, when we announced our unified communications roadmap strategy. And now, with this alliance agreement that Mike and I signed earlier, 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 quite clearly.
Unified communications, UC as we sometimes call it, is really about merging separate modes of communications, e-mail, IM, conferencing, video and voice. With this alliance, we really punctuate the fact that voice is absolutely a part of Microsoft unified communications. And what’s more, it must, like every other element of our Information Worker portfolio, really be very seamlessly integrated, intuitively delivered, and consistently managed. The great benefit of moving communications to the IP platform is not just to be able to do things that people can do today, it’s about integrating communications and giving people one place to stop and access their communications, to initiate communications, to manage a list of contacts, or friends, or buddies, it’s about allowing people to integrate those experiences with other line of business experiences inside companies, and it’s really about allowing people to write more and more programs that enhance the communications experience but are seamlessly integrated.
Today, two very much industry leaders in this initiative, Microsoft in the software business, and Nortel with its deep voice and networking heritage, are putting a stake in the ground to transform and accelerate the delivery of this new software-centric vision for communications. And we say software-centric because, in a sense, we and Nortel share a view that we can use industry-standard phones, industry-standard computers, industry-standard servers with the right software from our two companies to galvanize this unified communications opportunity.
Let me spend just a few minutes summarizing our partnership. From today forward, we’re going to work collaboratively really in three areas. First is R&D. Nortel and Microsoft are cross-licensing intellectual property, we’re forming joint teams to collaborate on product development. It expands really from the enterprise to the mobile space to wireline carrier solutions. Those solutions will include contact center software, advanced mobility solutions, mission-critical telephony functions, and importantly data-networking infrastructure.
Secondly, we’re working together on the sales and marketing front. We want to work very closely together and invest significant resources to really market and sell our joint solutions. This will include developing a series of solutions for small and medium businesses all the way up to the largest public and private sector organizations around the globe. We were brainstorming backstage on some of the ways we can get out and really make vivid for people that this isn’t just about what goes on in the data centers, or in the network operations centers for our customers, but really the experience that every end user in every organization around the globe will experience.
The third area of cooperation is in systems integration. Nortel is forming a dedicated systems integration division focused on these Microsoft-Nortel Unified Communications Solutions that will include a focus on the deployment of applications and infrastructure. It will provide our customers, we think, with an excellent transition path from the traditional phone systems, corporate PBXs of today to the world of unified communications based around software that spans phones and PCs and servers and businesses around the world.
This alliance really means that our customers can and will very quickly be able to evolve from using traditional business phone systems to the Microsoft-Nortel Unified Communications Software Platform. They will be able to protect their existing investments but still benefit by product innovations that come from both of our companies.
On the product side, we’ve been investing for some time. We really do have one of the most fantastic line ups of new products in this unified communications area that were all announced late last month. Five major products that are either new or significantly upgraded will be shipping not in two or three years from now, but really within our fiscal year which just started on July 1. All of these products are part of the Microsoft Office family, and the new products span Voiceover IP, call processing, unified messaging, conferencing, innovative telephony devices, and will actually be available not just on the PC but on mobile and on desktop phones.
With Nortel, this gets a whole lot better. Our approach means that customers will have a choice over how they evolve. The two companies don’t require a rip and replace to take advantage of all these integrated capabilities. The systems integration services from Nortel means customers can deploy these capabilities knowing that they have a very trusted and experienced voice provider to rely on.
In short, I think this industry is at a real inflection point, and change is imminent. I predict that within just a very few years all of us will be using next generation devices for voice and video communication. We really will have these devices in our hands, on our desks, in our pockets. And the combination of technology, service and support offerings from Microsoft and Nortel will really enable enterprise customers to deploy unified communications. The approach is revolutionary, I think, in terms of impact, but I think we and Nortel have figured out how it can be implemented in an evolutionary way.
We, and I, are very fully committed to this alliance. For me, it’s one of the most exciting and important new business partnerships for Microsoft and for our customers. And business leaders, I think, today can now take a step back and reevaluate their telephony and communications strategy because I think through this partnership the game has really changed.
Thanks, and I would like to ask Mike Zafirovski now from Nortel to share their perspective. Thank you. (Applause.)
MIKE ZAFIROVSKI: Thank you, Steve. Let me be the first to welcome Microsoft to the enterprise video world. It’s very clear that our partnership fundamentally changes the VOIP communications landscape with a software-based approach. Steve, I’m convinced that working together we’re going to be able to make revolutionary steps forward starting, as you said, at an evolutionary stage, and making very, very revolutionary investments for our customers. And I believe we’ll be able to give our customers reasons to rethink their communications strategy and to expect much greater value from their communications investments than what they have been able to receive ever before.
It’s very exciting for me on behalf of Nortel to say that we’re ready, we’re willing, and we’re prepared to work with you to make all this potential reality. Unified communications has offered us a tantalizing promise for some time right now, a world where computers, phone devices and PDAs converge into a single, easy-to-use platform that’s easily, intuitively tied together. And Nortel and Microsoft share this vision, and this is a giant win for our customers. This alliance will combine the intelligence of software with the reliability of networking and services to make the combination easy to use and very easy to implement as well.
Working together, Nortel and Microsoft will greatly accelerate the availability and power of converged networks and unified communications. Together we do a number of things. First, we move the functions of a traditional business phone system into software. It’s a very big statement for a company like Nortel to make that.
Second, we give the customers a network that integrates your communications solutions deep into other network applications. We provide a number of very specific examples.
Third, we provide the services and integration to make your transition very easy. Our customers will be able to reduce the total cost of ownership of business communications while at the same time you’ll be accessing new innovative applications, and build on their existing investments. As Steve said, we’re not going to be looking at rip and replace type of services.
This alliance will be the engine and force of innovation across the whole industry. Nortel wins by gaining the software expertise of a key player in the industry, and also by expanding our market. Microsoft, I believe, as Steve indicated, is going to win by aligning with an industry leader in voice, in networking, and also providing integration services, and just like for Nortel this also expands markets for Microsoft.
I believe the industry also wins. It’s going to win because this will dramatically accelerate the convergence of networking software and IP. There have been many discussions in the last years and decades, and that inflection point is coming as we speak. At the same time, we’re driving down the cost of business communications while driving the power and the capabilities and enablement up.
Let me share the ways that we believe that Nortel is significantly accelerating this UC vision. For starters, we’ve had a very mature UC product in the market since 2003, and right now we’re in the fourth evolution of it, fourth release. Gartner, as a matter of fact, rates us as a Magic Quadrant unified communications leader. We are a global leader also in business grade telephony, both in the IP PBX and VOIP world, and we have more than 300 VOIP installations all over the world. We’re the only providers today of converged solutions, and we’ve delivered over 50 million data ports and 50 million telephony lines.
Reliability, this is mission critical for many businesses, of course, is our DNA. So the most mission critical networks in the world depend on Nortel. If you look at a couple of examples, the stock exchanges all over the world, banks and airports, if you look at them you see what networks they use, most of them are using Nortel Systems networks.
Our business is always dependent on building security into our products at the network level. Most of all it’s an engineering of innovations, the communications world was a key in the move from analog to digital, from wired to wireless, from copper to fiber optics, and now we’re looking forward to moving to our next innovation, mobility in services. Most important, our customers know we will provide an evolutionary path, for particularly investments as technology moves forward. The biggest short-term win is that.
Our service team has years of experience deploying user solutions. We will use that to take the risk out of the transition to advanced unified communications solutions. The bottom line, we take the risk out of the transition for our customers. Nortel Digital Live is a key step in creating customer value and fueling industry innovation. Our enterprise business is a key to this transformation.
Steve Slattery will speak to you in a few minutes, he runs our enterprise business, but we have decided that we must and we want to change the trajectory of the enterprise business, and Digital Live is a dramatic proof point, proof point that we’re committed to the enterprise market, and remain determined to both grow it, and add value to customers, and to profit from it.
We’re excited Nortel will be increasing reproduced value as a software services company. Dietmar will make a few comments on it in a few minutes. Our new relationship with Microsoft represents and opportunity to create well over US$1 billion of revenue for Nortel in the next three years, with a combination of professional services, voice products, and data pull-through from our customers.
The tight integration and joint go-to-market strategy is at the core of this alliance, and will give us new opportunities to greatly expand the means for integration services. Finally, this is a perfect example, how we plan to leverage R&D and go to market services at the same time to align those to be able to drive customer value by working with partners.
So again, it’s great to be here. Steve and I have discussed doing something significant for a number of years, and this is the perfect opportunity, and I’d like to have Steve Slattery, the president of our Enterprise Solutions business, to provide more details into this transaction.
Thank you. (Applause.)
STEVE SLATTERY: Thanks, Mike, and good morning.
As Mike said, we’re changing the trajectory of the enterprise business at Nortel. This alliance is an exciting first step in this transition. Our strategy is to be the leader in business convergence. Business convergence is made up of four elements. First, it embraces unified communications, unification of IP telephony with communication applications such as instant messaging, e-mail, and audio and video conferencing.
Second, business convergence takes into account the enterprise need for reliable, robust, and secure application aware network infrastructure, delivering consistent quality of experience. The third element is application convergence, where you integrate the unified communications application with business applications, minimize the time to decisions, the time to revenue, the time to service, this is where the key value to our customers is going to be derived. Finally, integration services is about de-risking the transformation to business convergence, providing the assessment, installation, monitoring and maintenance services for the business. Our alliance will increase market share, by extending our reach into the enterprise marketplace with leading business convergence solutions.
Let’s take a look at our products and technology collaborations. Most companies will cross-license intellectual property. Nortel and Microsoft will form joint teams to collaborate on product development that spans enterprise, mobile and wire line carrier solutions, a unique attribute that Nortel brings to the partnership. This alliance will deliver a complete software-based unified communications infrastructure that supports the widest range of user phones and devices, ensuring business-grade telephony over PSPN, IP, and mobile networks.
From our customers’ point of view, we will together drive continuous innovation in the unified communications space, while delivering a seamless evolution path for enterprises with traditional or IP PBXes. At the core of our joint sales and marketing effort is, of course, the formation of the innovative communications alliance. This is a uniquely branded alliance that will leverage the installed customer base of both companies. Both our customer bases will have the advantage of Nortel’s experienced services integration team, available to channel partners and enterprise customers, for such services as transition planning, optimization, monitoring and managed services. Each company’s sales team will be trained on selling the higher-level value proposition of the joint unified communications solution.
Both companies are investing significant resources in marketing and business development, integration service, product development and training. Microsoft and Nortel will identify and develop joint channels to market. From the customer point of view, we are de-risking their current and future solutions, as well as extending our reach into the enterprise customer base.
Let me also give you a broad overview of the rollout of this alliance. As you know, Nortel is already offering a unified communications solution today working with Microsoft. There are three things that make this solution unique. This solution is based on a software-only interface between Microsoft’s LCS, and Nortel’s CS-1000. It provides access to the advanced telephony functionality of Nortel’s CS-1000, and above and beyond it delivers PSPN access in dial plans to Microsoft’s communicator client.
We’ll start this quarter by aligning our sales, marketing, and development teams, and ramping unified communications focused integrated services resources. In 2007 you will see the joint phased rollout of additional Microsoft and Nortel products.
Let me turn it over to Dietmar Wendt, President of our Global Services Group, for some final remarks on the integration services that will ensure our customers will have the easiest transition to advanced unified communications.
DIETMAR WENDT: Thank you very much.
Yes, ladies and gentlemen, Nortel has an aggressive plan to drive significant service revenue growth. We will target more than 20 percent of the upgrades from our installed PBX space. The formation, the recent formation of our Network Partner Solutions Group is part of a new global services strategy to leverage partnerships at a more integrated level. With this strategy Nortel will share products and services with Microsoft, in a joint go to market model, to enable unified communications. These converged integration services, built on our current portfolio of end-to-end services, for solutions such as contact centers, self-services solutions, and our Multimedia Communications Server 5100. This provides and offering that delivers customers business value by evolving their network infrastructure to zip-based unified communications. Nortel will be leveraging our internal capabilities, as well as our partners to ensure end-to-end voice and IP infrastructure services are delivered with the highest level of quality.
As customers move to unified communications they have demanded expertise in services, which tie the desktop and voice network together. This, ladies and gentlemen, is a unique opportunity for us to bring our co-expertise, Nortel’s co-expertise to the table. We have the product knowledge, the experience, the global presence, and broad industry background that our competition can’t match.
We have been deploying unified communications type of services for over two years now, with our own MCS product line. Our global service experience with VOIP deployment allows us to understand issues a customer might encounter or face as they move forward to converged network solutions. In fact, Nortel has successfully deployed our own unified communications solutions, and now we are taking that experience out to our customers every day.
So to conclude, we are more than excited about what this partnership brings to our customers, and the evolution of the market space. We are more than committed to driving this industry transformation, and enable a fundamental change in our enterprise customers will communicate in the future. Thank you very much. (Applause.)
ANOOP GUPTA: Thank you, Dietmar, and thanks also to the rest of our speakers. Let me briefly summarize today’s announcement before we move to Q&A. We are very excited today to announce the innovative communications alliance between Nortel and Microsoft. We have a shared vision for unified communications. And today we are combining the best of expertise in voice and networking, along with the productivity software expertise that Microsoft brings to help address the communications chaos, and to enhance business productivity.
Our partnership will involve cross-licensing of IT, and it’s going to develop into products, Nortel’s formation of the dedicated services integration capability for joint user solutions, and a comprehensive sales and marketing program to take these solutions to market. The impact of the innovative communications alliance will be the acceleration of the delivery of these unified communications solutions, and the resulting benefit that our customers will get an experience on the delivery of these solutions.
So before we move to Q&A, which will conclude the video portion of our broadcast, I’d like to thank all our viewers, and people here, and we look forward to your questions. Thank you. (Applause.)
Operator, we’ll take our first question, thank you.
QUESTION: I was just wondering if you could expand on how this partnership and alliance might show up in the Microsoft Business Dynamics, in terms of surfacing the voice-enabled applications in CRM, et cetera?
ANOOP GUPTA: Clearly, a key part of our unified communications vision is not only seamlessly integrating e-mail IM, but making sure that the communications capabilities are embedded within the business applications and the processes used, and we are building a joint platform that will make it easy to integrate. And certainly, you will extract that in our applications and Dynamics applications we are bringing these capabilities to the fore.
QUESTION: So we would expect to see the same type of synergy between, say, Win WF, the workflow, to include voice enablement as part of a business process?
ANOOP GUPTA: Yes, absolutely.
QUESTION: Thank you.
QUESTION: This is a question for Mike. Could you go into a little more detail about, I believe you said $1 billion in incremental revenue, that you expect this partnership to drive? Also, if you could talk about how this partnership fits in with statements you made recently about wanting to get out of businesses that you weren’t leaders in, and sort of focusing on core business?
MIKE ZAFIROVSKI: First of all, great questions. As for the second part, we made repeated comments that enterprise is a core of our plans to move forward. We believe we have very good products currently. We said we’d be investing to enhance those products, as well as enhance our go to market activities, all things which we are doing.
We also see the industry in an inflection point, convergence of communications in IT, and with the option. Rather than to play defense, we can play offense. We do believe that many of the elements which we currently find in the PBX, and the related hardware products, will be moving very gradually, very rapidly, to software. So this is a perfect way to align with industry leader in that space, and to make sure that we provide the best evolution for our customers in the process to grow nicely our enterprise business.
The comment to revenues, that we expect to get incremental revenues well in excess of $1 billion over the next three years, combination of integration services that Dietmar spoke about, but also increased applications. And one of our objectives is to be able to drive unified communications deep into the networks of our customers, is to be able to bring applications, to be of great value both to knowledge workers, and well as to service workers. So I can go on a long time, but hopefully that provides you an answer why this is very much an offensive play in how we plan to bring value, as well as to be increasing the financial performance of Nortel.
QUESTION: Thank you. Good afternoon. Questions actually both for Mr. Ballmer and Mr. Zafirovski. Comments were made about helping with the transitions, that this won’t require customers to rip and replace. How does Microsoft then address the non-Nortel customer? I can see how this announcement helps the current Nortel customer transition to the software-based future, but what about the non-Nortel customer, will we be expecting similar announcements with Microsoft and Nortel competitors, so that Microsoft can have those customers transition to this software future?
STEVE BALLMER: We have announced already, and are working hard on a range of interoperability solutions between our unified communications platform and, in essence, what people own today for business telephony systems. The opportunity to actually then implement those things quickly in the market takes more of those than just the product and the interop, it actually takes a services capability that can help the customer get there. And I could ask my friends here from Nortel, but I’m sure they’d be happy to transition anybody else’s legacy business telephony systems, not just their own, and we’re going to work hard to make sure we’ve got the right elements in place, and then the systems integration services from Nortel I think can get the job done.
MIKE ZAFIROVSKI: If I can just add one comment, and, Steve, you may want to add a few more, but one of the real strengths and confidence builders which we have with our customers that we have always enabled to drive the next evolution of technology across all of our businesses, and that’s why this is actually a very easy decision for us to make. We’ve made it easy to go from PBX to VoIP. Some people are contemplating whether that’s the right move; we can give them the confidence to move to VoIP and in a very, very robust roadmap to get to unified communication as the requirements are finalized.
STEVE SLATTERY: As Mike said, yeah, our Evergreen approach has been a fundamental part of Nortel’s enterprise strategy for the past 30 years. But as Steve said, in terms of our competitors’ installed base, there’s a significant base of older PDM products there that even our competitors won’t be able to evolve smoothly, and there’s a great opportunity for us and Microsoft to go in there and show them the vision of a converged business, and to evolve that base, utilizing Microsoft and Nortel products.
QUESTION: Thanks, and congratulations, gentlemen. This is a remarkable announcement, one I think a lot of people in the industry have been waiting for.
I have a specific question that gets down to the — as one of the handouts you have is 450 world class telephony features. How do you plan on integrating that? Microsoft has been talking about having some simple SIP features, and not supporting the 450 world class telephony features. How do you see that becoming integrated in the products in the near future?
ANOOP GUPTA: Let me take that one. The way we think about it as a lot of core VoIP call management will come as a part of the Microsoft software UC platform. What Steve and Nortel and Microsoft team have been talking about is advanced telephony servers that seamlessly — again, all software-based — that connect with the call processing software that we have. So for businesses or the public sector, military organizations that need the higher end features, we can enable them for our customers and allow them, instead of waiting for a long time, to adopt these unified communications solutions now.
QUESTION: Hi. Thanks very much and congratulations to all of you.
I was at the announcement on June 26th, and saw a lot of the partnership announcements that were made at that time. Can you talk a little bit, Steve, about how this announcement with Nortel is different from, say, some of the other announcements that you made with other legacy communication suppliers such as Siemens? Thanks.
STEVE BALLMER: Yeah, what I would say is pretty straightforward. I think our customers want to see from all of us a desire and willingness and the work to get things to play well together. That is interoperability for all participants in this marketplace is essentially a requirement, and so we’re working hard on broad interoperability, Nortel works hard on broad interoperability. It’s kind of the nature of the game in communications.
This announcement is not about interoperability. Of course, we’ll have it as part of what’s there. This is really about having an aligned offer in the market; that is, our people and the Nortel people in front of customers every day can demonstrate, communicate, and talk about a common solution set, based on our unified communications platform, extending up to advanced applications and solutions that Nortel builds, and with great system integration capability, which will be provided by Nortel, and certainly I know we all hope there will be many other small integrators as well, since the number of customers who are going to want to implement we think these kinds of solutions will be enormous from the largest down to many smaller customers. So this is beyond interoperability, this is really about getting a coherent offer in the marketplace between the two companies.
In my own view I kind of liken it in a sense to something very important that we were involved in now probably almost 20 years ago with Digital Equipment Corporation when we really aligned what we were doing in e-mail. We didn’t just interoperate, and four or five years later we had millions of seats of Exchange deployed, and frankly Digital had been the most important partner we had had to get there. And so I think the notion of aligning, having strong go-to-market and mutual product development will be mutually beneficial for us and for our joint customers.
QUESTION: Hi. This is a question for Nortel mostly I guess. Over the last couple of years the technology behind the IP PBX platforms has been kind of moving away from Microsoft-based service to more open systems. Does anything change with this partnership or are you pretty much going to stay along that course?
MIKE ZAFIROVSKI: I’ll take first a couple of statements, and, Steve, you can add on it.
We’ve been working very closely with Microsoft all along. As some of the diverging customer needs have developed, we also have worked with some customers to be able to provide a broad array of offerings.
Similar to the previous question, as Steve alluded, this is a much deeper and broader relationship in going forward, and, of course, this will make our joint product developments, joint going to market activities, joint R&D, this certainly is going to change the game and with very, very significant, positive expectations for what we’ll be able to do together.
STEVE SLATTERY: Yeah, from a platform perspective our strategy is to go to commercial, off-the-shelf platforms, hardware and software. Most of our application platforms today are on a Windows operating system, and as part of this partnership we’re going to look at where that makes sense across the board in the product portfolio.
QUESTION: Thank you. This question is directed to Steve Ballmer. Steve, the question I have is related, of course, to the channel, and that is it seems pretty clear that the formation of a specific Nortel division suggests that a good part of the services revenue will be derived from Nortel. I’m wondering how do you envision the split between Nortel’s integration division and that of the channel?
And secondly, you mentioned that you hope that there will be a channel of integrators that participate in this, and the press release states the intent to create a joint channel between both companies. Could you specify how you intend to do that, and why you said you “hope” as opposed to you “will” have a channel in this? Thank you.
STEVE BALLMER: Okay, well, I’m glad you dissected each word, and you did that a little bit more strongly than perhaps I chose the words.
No, we will have a strong integrator offering and integrator channel for our unified communications platform, in a sense the same way we do today around Windows Server, Active Directory, Exchange. We’ll want our partner channel to be engaged and active, deploying these solutions. Nortel will, because as big as the eyes can be of a dedicated division, we’re really trying to touch not just the global 100, we’re trying to touch literally hundreds and thousands of businesses around the globe, and the only way for we and Nortel to do that together is with a leading system integration service from Nortel, and strong systems integration service from the broad channel that we court, and that Nortel courts today.
So I don’t hope, I guess, we will drive the creation of that channel. And frankly, for a lot of our partners, our current partners, the kinds of folks who attended our Worldwide Partner Conference last week in Boston, I think this will be a natural step forward in terms of new services that they can offer to their customers.
So I think of this as right in the mainstream of the bulk of our partner channel, and just as it was helpful in some accounts and for the channel generally to have somebody out in front like Digital Equipment got as a leader with systems integration services, I think it will be good for our partners to have this kind of bellwether systems integration service being led by Nortel, in addition to, of course, the fact that the value-added products that Nortel builds will be delivered through our channels I hope, and our unified communications platform through Nortel’s channel.
QUESTION: Steve, what is the incremental dollar increase for Microsoft in this deal, and does this represent a sort of pairing off where Microsoft-Nortel will be the enterprise choice, and versus IBM-Cisco?
STEVE BALLMER: Well, let me take the first question first. For me this isn’t about specific financial forecasts. The way I think about this is within the course of the next ten years, where N is actually a relatively small number, all communications in businesses and organizations around the world will move to be IT-based. That literally means there are hundreds of millions, hundreds of millions of people who will be getting a new communications experience over the next four or five years, and if we can’t make that into a gigantic opportunity for Microsoft and for Nortel, shame on us. Now, whether that happens all in the next N months or whether it takes more like N years, I know it’s a huge opportunity, I know we and Nortel have the right stuff, the right technology to make it happen, so the key is to make it happen. And if we invest as we have in the R&D and now together with Nortel and the R&D in sales and marketing, it’s a big opportunity.
In response to the second part of your question, certainly we’re in the market with a unified communications solution, we’re going to want as many people out there as humanly possible to want and implement our solutions. And there are competitors in the market, as you highlight. Certainly we’re in the business today, every day, of competing with IBM. That will continue. You know, with Cisco we have aspects, certainly very important aspects of cooperation, but we have very important aspects of competition also in our relationship, but I think customers will benefit from kind of our energy and Nortel’s and the alignment of what we bring to the unified communications space, and we’re looking forward to getting out there and telling our story, and hopefully we’ll have some customers that really resonate with what we think is a pretty exciting product lineup.
QUESTION: Yes. I’m still hoping for a little more in terms of detail of what this means in terms of finances from each side, what’s going to be devoted in dollar terms to this joint venture.
And sort of supplementary for Mr. Ballmer, why not just dip into petty cash and buy Nortel? (Laughter.)
STEVE BALLMER: Should we do the first one? (Laughter.)
You know, on the first one I don’t think we’re revealing much in the way of specific financials. There is certainly a payment from Microsoft to Nortel as part of an intellectual property licensing arrangement, but most of the energy will be money that we both spend in the marketplace or that we are talking to customers together. We have I think a pretty exciting lineup of activity, which while we won’t give you financial details, customers will be seeing those all the time. Of course, Nortel and Microsoft both have R&D investments that we’re making around the products that we’re talking about, which are separately sort of baked in, I guess you would say, to the financials of both companies.
So unless Mike Z wants to add anything on the first one, I’ll just — I do want to talk about the second in a serious way. You know, Nortel is a great company. It’s a great company that has very different expertise than Microsoft has. And like a lot of great companies, what you need to do is find out how to get one plus one to be three. Intel and Microsoft have flourished as two separate companies but with a close partnership and relationship that allows each company to focus in on its specialty. We are not experts in our place in enterprise networking, optical transmission, voice solutions, many of the things that Nortel has done, and that is properly a separate expertise.
And so one of the keys in our industry is to find the right way to partner. You know, we’ve had a great partnership over the years with folks like Intel and Dell and Hewlett-Packard, and I view this relationship with Nortel in the VoIP and unified communications area as very similar to what those partnerships have meant in the PC and enterprise systems integration businesses.
MIKE ZAFIROVSKI: If I can make a couple of comments, I mean, first of all, this will be a huge win for our customers. To enterprise customers all over the world this will enable a much more rapid deployment of communication capabilities that people have talked about, now they’re very ready for an easy implementation.
This is unprecedented for Nortel to be able to commit R&D, go-to-market resources, as well as to have license agreements with someone like Microsoft, and this will allow us to play offense, to lead as opposed to playing defense in the enterprise space. Is this risk-free? Of course, not, if we deliver. And the teams have worked collaboratively now for the last three or four months, this did not just come up over the last couple weeks. We believe this to be a wonderful opportunity to take the industry with this inflection point and drive significant value for our customers, for where we do that I think both of us are going to do very well financially as well.
QUESTION: Hi, gentlemen. And to echo thoughts, I think this is a great announcement.
One thing I was wondering, though, we see that IT shops often align themselves in silos around their technology, so convergence of any kind becomes a challenge because they can’t necessarily align fast enough to adopt it.
So with that in mind, who are you targeting within IT as the owner of these products maybe now or moving forward, and are you going to lean on the system integrators’ side to help them through that challenge?
STEVE BALLMER: I think it’s actually a very good question, because in many large IT shops you’ll have different people responsible for data networking, responsible for VoIP, and responsible for e-mail and all that comes with that. And in some senses the value proposition here in unified communications is so strong for the user that part of our role and anybody else who wants to play in this game has got to be to make the technology implementation easy enough and be part of the galvanizing force across the various experts in the IT shops to make it happen.
I think the way you point at the system integration services that Dietmar was talking about is a good example of — in a sense a good example of why this might be particularly necessary, but that challenge is not lost on us, and frankly it’s one of the things I think is exciting in the field side. We and Nortel deal every day mostly with different parts of the IT department, and for this vision to come together, not only do we need to talk, we need to facilitate that conversation at our customers.
MIKE ZAFIROVSKI: Dietmar, would you like to add something?
DIETMAR WENDT: I think, I mean, on the delivery side it’s clear we have to work with the IT guys, the CIOs and the responsible managers in the IT shop, but from a go-to-market perspective we certainly address the entire enterprise, because this story is about workforce productivity, so you can go to any executive in an enterprise and give this speech. This is a major transformation how enterprises are working, especially these ones who have a broad range of people who are out in the field working from remote locations. So we already have set the stage at Nortel to create, as I have pointed out, a business solution group, which was announced last Friday, and the entire focus is not just to make sure that we have world class delivery in place, but also a world class sales and marketing engine behind it.
OPERATOR: That does conclude today’s question and answer session.
STEVE BALLMER: Great, thanks, everybody, very much.