Steve Ballmer: Microsoft-Nortel News Conference

Transcript of news conference with Steve Ballmer, CEO, Microsoft Corporation, and Mike Zafirovski, CEO and president, Nortel
Shared Vision for Unified Communications
New York, NY
January 17, 2007

ANNOUNCER: Ladies and gentlemen, live from New York please welcome Microsoft CEO Steven A. Ballmer, and Nortel CEO and President Mike Zafirovski. (Applause.)

MIKE ZAFIROVSKI: Thank you. Welcome, everybody. Steve, probably one of your spaces; this all used to be a Saturday Night Live space, so it has been one of mine.

But six months ago, we put a stake in the ground, and we said we’re going to try to accelerate a software-driven vision for communications. Well —

STEVE BALLMER: You know, I think today we really get a chance to make a statement. It marks a major milestone in turning vision into reality, and we hope people really appreciate the variety of both products, software, services, and solutions that the two companies are bringing to market this year, and into the future.

MIKE ZAFIROVSKI: Absolutely. We have come out of the gates very strong. We love the feedback from many of you. We have dozens of new customers and hundreds in the pipeline. And this reaction here has been across verticals in the financial services industry and oil, education, so very, very broad-based acceptance. We’re very excited. And Steve, what’s the next step on this exciting journey?

STEVE BALLMER: It sounds great. Thanks, Mike. Let me grab one of those. I never feel quite comfortable without the clicker in my hand.

You know, I want to sort of tee up kind of where we’re coming from, and too here also where Nortel is coming from as we form this Innovative Communications Alliance.

For many, many years, both companies have really been in the business of communication. Nortel quite obviously has been broadly in the telecom business, as it’s know, and Microsoft has been in the business of helping people author, transmit e-mail and other information. And in a sense it was inevitable — people have talked about it for years — that you’d start to see a convergence of communications, and what does it mean when you take the kind of data communications that our companies has been involved with, and the kind of voice and video communications that Nortel has been involved with, and really bring those things together.

And so the alliance we announced six months ago recognizes that and says specifically in enterprise customers around the world how do we move to accelerate what we like to call unified communications, the notion that people don’t have to understand the differences and similarities between voice and video and e-mail, instant messaging, et cetera. But we’re really trying to accelerate that transition in a way which is very positive and drives new scenarios for end users in business, and helps IT people both extend the solutions they can provide and drive cost and complexity out of the IT infrastructure. So, we’re trying to simplify and enhance things, and really extend VoIP, as it’s known, broadly across the business.

I think what we put in place six months ago was very powerful, but the question that we received, of course, at the time was where’s the beef, show us the specific products, the services and solutions, and today we get a chance to share with you the first real, concrete deliverables and output that you’ll see this year, as well as we’ll continue to talk to you about the roadmap on where we really go for the future.

One of the things I’m most excited about is the breadth of this relationship. There’s a cooperation, of course, in the marketplace, but it is deeply supported by joint R&D work that we’re doing, and by services investments that we’re making together that will be conducted overwhelmingly by Nortel, but it takes really pooling the best of the brainpower of both organizations to have good service offerings to help customers really go implement this stuff.

So, if you want to sort of take that as a bit of perspective, I’m going to talk to you a little bit about where we’re going, and I’ll leave the good stuff, what we’re delivering this year to Mike, but I think it’s important to have a little bit of this perspective and this vision.

We would say the world is kind of on the left-hand side of this slide right now in terms of the way businesses do communications. People have PBXs, people have audio conferencing systems or solutions that they buy, videoconferencing solutions, e-mail — hopefully all Microsoft Exchange — instant messaging solutions. And these are all islands, the way you get provisioned, the way you sign up, your username, your address, the way you find somebody. How many messages do we leave on average in various places for somebody; whether it’s a text message you might leave, a voice message you might leave, an e-mail, an IM, all over the place.

And you could say, hey, it’s a very livable world, we all do live in it, in fact, every day, but that doesn’t make it the best we can do, the best for the end user, let alone the best for the IT department or for the people who are developing business applications. We think there’s a lot more.

We’re moving sort of through phases from the left-hand side of this slide to the right. The next phase we have chosen to dub, at least in our alliance, the so-called “integrated phase.” We’re trying to first integrate things at the user level: How do you get smart, unified clients, whether those clients are PCs, mobile phones, or fixed line phones, how do you get smart, unified clients where you can pull together all of this communication and operate on it in some integrated fashion, at least on the client level? And at the same time we’re recognizing the fact that the PBX infrastructure and, if you will, the IM and e-mail and some of the other infrastructure on the back-end will stay separate. So the heartbeat of the telephone continues to come in the PBX, but we pull together enough integration to power these smart, unified clients. And a lot of what we’ll talk about today in this space really delivers on that vision.

As we move forward, we move to a world that we’ll call the transformed world of unified communications. And in this phase what we do is really in some senses integrate the back-end. The PBX itself, instead of being a separate hardware and software stack that has its own programming tools and management tools, we pull all of that together so that as people want to write business applications that have communications integrated inside of them, we provide the same toolset, Visual Studio, for example, from Microsoft, working with Exchange, with Active Directory, with the voice system; that gets integrated in that second phase. And through that integration we get a chance to deliver even more value to the users in these smart, unified clients.

One of the big improvements that we do make in phase one that doesn’t weight on the back-end is the move to get to a single notion of a user, their name, and their presence. That is an important part of communications. Am I Steve Ballmer? Not to my son. To my son I’m 425-443 — and I’ll leave out the rest of the numbers because I don’t want to get a lot of phone calls. That’s how he reaches me. That is one of my text mail accounts. In that first phase though we integrate this notion of I have a username that lives in a directory, and my presence can be found.

Now, the truth is these are not pure phases. You will get smart, unified clients even after we’ve delivered the transformed back-end between us. You’ll still have enhancements and smart, unified clients in environments where people want to keep the PBX world, perhaps IP-PBX world, and the server world separate, but there will be continuing benefits. So the top and the bottom, the back-end, the datacenter work and the client work will be able to proceed to some degree in parallel.

So it’s segmented, it’s integrated, but transformed — segmented to integrated to transformed, and the two things that we think are absolutely unique about what we’re doing together. We think we’re the only companies whose roadmap really talks about this notion of a smart, unified client, unified e-mail, unified communications, collaboration, and that largely builds on the popularity of our Windows and Office systems.

And we think really we’re the only company that on our roadmap will talk about a unified development platform and management platform across all of these communications modalities at the server level.

You’ll see various other firms in the business talk to you about using industry-standard hardware, maybe even standard operating systems, but really make it easy to write a program that invokes line of business logic, e-mail, instant messaging, voice, video, we think we’re pretty unique on both of those dimensions as we work together.

Smart, unified clients: Just one more brief word on that second phase. The first phase is move, if you will, to integrated. We see that being in full swing this year, next year, 2009. And I’m not saying everybody moves to a transformed world by 2010, but we think transformation will be in full swing by that period of time. And the key change that you really see there is we go from a world in which there is only the notion of a separate PBX, if you will, and server software as the typical IT person would know it, to a world in which our Office Communications Server, or OCS as we know it, and Nortel’s Feature Server delivers the full telephony experience. And they’re both running on the standard Intel architecture servers, they’re both programmed with Windows development tools, management tools, and they deliver a common experience.

And by 2010, we’ll have the technology in markets before that, but we think that customer adoption of that kind of transformed infrastructure should be in full swing largely by that period of time.

So, with that a little bit as a backdrop on our combined strategy and what I think is fairly unique about it, I’d like to turn things back over to Mike, and Mike is going to talk a little bit about the here and the now and some things we can do for you.

MIKE ZAFIROVSKI: Thanks again, Steve.

We are delivering on a promise of transforming the enterprise. If you’ve been following Nortel, one of our key strategic objectives has been to have Nortel to become a very relevant player in the enterprise space, and to work with you to help you transform how systems and processes really are redefining business on all fronts: productivity, go-to-market activities, customer service, and we’ll provide you today with a brief update on the coming events.

You’re probably going to hear this comment a few times, but this is not chartware, this is not only PowerPoint slides, as much as we love PowerPoint slides, but this is to let you know what we have accomplished in the teams. Both teams have worked really hard these past six months to drive this vision into a reality, starting second half of 2006, and I’ll show you what’s happening 2007 and beyond.

So, first, this is what we have today. There’s a terrific foundation in place, and the combination of our CS1000 PBX, working with Steve’s servers, we have a unified, we have a converged offer today that works very well for small and medium-sized businesses.

The second half of this year we’ll be able to upgrade this with our new CS2000, 2100, and CS2000. This will allow the same Converged Office capabilities for large enterprises and also for here a host of solutions.

You can say, what is magical about this? But this solution empowers enterprises by giving users the powerful telephony wherever they are. And as it shows here, it combines IM, presence, business grade telephony, and Office and Exchange Server capabilities. It can exist right now for small- and medium-sized businesses, and the capabilities will be upgraded for large businesses and carry a host of solutions in the second half.

And a number of other benefits of this: It really lets you build on what you have today, a significant protection of your investment, and it’s very easy to deploy. It’s one software upgrade with existing capabilities to allow for this to happen.

But, of course, we did say we’ll be announcing new solutions. And suffice it to say the teams have been working very diligently this past six months, and we have three solutions now. I’m going to announce the first two, and we have a demo. I think that, you know, seeing and feeling is always better than just having a person try to describe on the stage. Then I’ll come back and describe the third solution.

What all three of those things have in common, and I’ll even use the work, the textbook examples of providing those three things. One is gives you ample choice of flexibility to upgrade, to evolve as you’re ready. I believe second to none investment protection: in most of the cases all people love advice as to the ways to be able to protect the investments that you’ve made, and to provide optimum progression going forward, and speed of deployment. Of course, we have services offerings, which we’ll discuss as part of this presentation, discuss how we can help you evolve on the movement towards what Steve was commenting, to move from the segmented to the converged to the transformed.

So, let me just briefly introduce the first two solutions, and one has to do with unified messaging, the next one is with conferencing.

The first will be integrating Microsoft new Exchange UM with our PBX solutions. We’ll be using our native SIP interoperability to ensure the smooth inter-working of the two solutions. This will be available in the second quarter of this year.

The second would be integrated our powerful and simple Multimedia Conferencing solution with the Microsoft OCS, and this will be available in the fourth quarter of this year. The result is going to be able to give you users a powerful, single experience for instant messaging, presence, and, of course, conferencing.

As I said, I can try to describe this for much longer, but I think what’s going to be the most productive to see the power and the simplicity of those solutions is to have a demo. We went through this last night, it worked out perfect. I’m sure it’s going to work out perfect again, Gary. So, Paul Duffy will be demonstrating three things: Converged Office that we discussed before, which we have today for small businesses, moving to the large enterprises; conferencing, and unified messaging. Paul Duffy from Microsoft.

PAUL DUFFY: Thank you. Good morning.

So, building on what you’ve heard so far, I’d like to show this demonstration, how we’re combining and working together with technology from both Microsoft and Nortel to deliver solutions to customers.

So, you’ll see three things during this demonstration. You’ll see how Nortel’s Multimedia Conferencing works together with Microsoft Office Communicator to deliver audio and videoconferencing to users. We’ll also then see how Microsoft Exchange Server 2007’s unified messaging capabilities, working with the native integration that Mike talked about earlier, will deliver an experience to end users. And we’ll also see a solution that’s been available for a while now, how Nortel’s Converged Office solution works with Microsoft Office Communicator to give users more control over their communications.

So, we’re doing all of these things to provide intuitive communications tools for users across different modalities, whether people are using instant messaging, voice, video, and so on.

So, I came on a journey here from Seattle to New York. I’d like to have you come on a little journey with me to my hotel room. As you can see, nice minimalist furniture. It’s a good hotel; they gave me some water to start off with.

What you can see on the screen right now is the context of my Outlook inbox. So, as we’re used to seeing, we have some e-mails here. It looks like I’ve got one from my colleague, Andreas. But when I open this e-mail, as well as seeing the normal text that one would be used to seeing as part of an e-mail message, I also see these colored icons next to the names of these individuals. So, as a start that’s giving me some information at a glance with the colors. If I hover over these, I get some more information, I can see that Andreas is available.

So, with one glance it tells me something about the presence or the availability of the people who I might want to communicate with. It could be as simple as whether they’re available or not. It could be more complex; are they in a meeting, are they in a phone call. And it’s that kind of information, that’s all done for users automatically.

So, right now if I was to look at my status, I’m shown as in a meeting, and that’s done automatically because I happen to have a meeting that was in my calendar.

So, anyway, on to this, let me put this menu next to Andreas. So, I have a range of different ways to communicate with him. That could have included a voice call, it could have included an instant message. So, I’m going to reply to this e-mail now, not with another e-mail but with an instant message and see what information Andreas has for me.

I hope Andreas comes back with an answer. Great. It looks like some very strong needs for unified communications.

Now, sometimes it’s enough to participate with just two people; this time it looks like we’re going to add Samia. I can see that he’s available as well, so we’ll add him to this conversation.

Instant messaging is often enough for communications, but what I want to do right now is move this to an audio and videoconference. So all I have to do is click here, set this invite.

COMPUTER VOICE: You will now be placed into conference. The conference will be allowed to continue when you disconnect.

PAUL DUFFY: So, I’ve seamlessly gone then from an e-mail to an instant messaging conversation, and now to a multi-party audio/video conversation using Microsoft Office Communicator, combined with Nortel’s Multimedia Conferencing.

So, I think everyone has arrived now. We saw the notifications. So, Samia, what data have you got for me?

SAMIA: Yes, Paul [sic], at one global enterprise when 46 percent of the videoconference users used it as an alternate to travel, they saved US$5 million annually.

ANDREAS: Hi, Paul. Hi, Samia. Hey, don’t forget that the payback period was only eight months.

PAUL DUFFY: Right. Well, thanks for the view, guys. It’s great to have such an enthusiastic team with such good data. (Laughter.)

So, the time has come now for me to leave my hotel room, and as unfortunately happens on occasion I’m running rather late for one of the next meetings that I’ve got. So, I’m going to show you the kind of experience that Exchange Server 2007 unified messaging delivers to users.

You can see on the screen right now I’ve got a voicemail in my inbox. Exchange Server now does more than just e-mail; we have the unified messaging capability. I could have played this message and so on.

But what’s really relevant for this demonstration now is when we look at my calendar. So, we can see here I’ve got a few meetings. It looks like I should be somewhere else right now. It’s almost lunch time; I’m quite hungry.

Now, normally maybe I could use my laptop and use some kind of smart device to tell people I’m going to be late, but this time I’m going to use a plain telephone here to interact with my calendar and let my colleagues know that I’m going to be late. I’ll mute my microphone while I do this portion of the demonstration just so we don’t get any feedback, so you’ll just have to bear with me for that.

COMPUTER VOICE: Welcome. You’re connected to Microsoft Exchange. (Keys pressed.) Paul Duffy. Please enter your pin, then press the # key. (Keys pressed.) You have no new voice messages, and no new e-mail messages. You currently have a meeting in progress in New York. Please say voicemail, e-mail, calendar, personal contacts, directory, or personal options.

PAUL DUFFY: Calendar for today.

COMPUTER VOICE: Opening today’s calendar. You have a meeting that you organized from 11:30 to 1:00 in New York, titled “customer meeting.” You can say, next day, cancel meeting, send an “I’ll be late” message, meeting detail, play header, clear my calendar, main menu, or more options.

PAUL DUFFY: I’ll be 20 to 30 minutes late.

COMPUTER VOICE: Twenty to 30 minutes; is that right?


COMPUTER VOICE: All right. I’ve sent a message to all attendees that you’ll be 20 to 30 minutes late.

PAUL DUFFY: Very polite. (Laughter.)

So, there, faced with all these choices, I was able to call into my calendar, tell people I was going to be late. I could have done that from any phone, whether it was a desktop, pay phone, if anybody uses those these days. I could also have had an e-mail read to me, I could have called somebody; full, richer feature set which we’re not going to demonstrate right now.

So onto another little journey here. I’m moving now to my regional office in New York, and I’m finding now through Microsoft Office Communicator with my phone here as part of the converged Office solution. Now, I’ve been used for a number of years now to having my laptop and my e-mail follow me very simply. Things are a little bit different often for telephony, for my communications. Maybe I had a business card with multiple, different numbers on it. People didn’t really know how to contact me.

So, what we’re doing here, integrating with existing telephony infrastructure in many cases, is giving end users control of more than just their e-mail, of their voice communications as well.

At the top of this screen here you can see that my call forwarding is set to off. So I’ve got control of my PBX associated phone back in Seattle. I could choose to have my calls forwarded to a mobile number, I could choose to have those calls dynamically forwarded, so if I was to see something I could take that call on the phone that’s sitting here. If I was away from that phone, I could perhaps choose to take it on the PC, bringing me some real value from that convergence.

For all these contacts I’ve got here I can also choose to call them, again using either my PC, combined with Microsoft Office Communicator with infrastructure like Nortel’s CS1000 Call Server, or controlling this phone here.

Now, usually the best way to demonstrate this is when one gets an incoming call. So, let’s see if I do get an incoming call. (Laughter.) (Phone rings.) What luck; it’s Mark. (Laughter.) Excuse me for a moment.

Hello, Mark.

MARK: Paul, what are you doing in the office? I thought you were traveling. I was expecting to get your voicemail.

PAUL DUFFY: Bad luck. (Laughter.)

MARK: Well, I’ll have to give you the message manually. I’ll pay you the 20 bucks back when you get back from New York, if you are in New York.

PAUL DUFFY: I’m a bit busy at the moment.

MARK: That’s amazing. How did I get to you in New York? This is cool.

PAUL DUFFY: Yeah, isn’t it. Well, I’ll talk to you later. (Laughter.)

So, just to wrap up there, what we saw, I was able to control my communications, managing now that my e-mail follows me, my voicemail, my voice communications follow me as well.

I chose to talk to Mark using Microsoft Office Communicator on my computer, connected to a Nortel CS1000, and giving Mark something of a nasty surprise, but from the benefit point of view, really letting me manage my communications.

We also saw the experience that end users would get when they’re using Exchange Server’s unified messaging capability with the native integration that we’ve talked about before.

And then in the first place we saw how seamlessly from the context of what I was doing in my e-mail I could transition from an e-mail to an IM conversation to a multiparty video and voice conversation.

But all of these are showing how technologies from Microsoft and Nortel come together.

So, with that, I’ll hand back to you, Mike.

MIKE ZAFIROVSKI: Great job. (Applause.) And we thank you, Paul.

Hopefully you were able to see the powerful value for the end users, and that those three solutions are delivering.

But network transformation is needed for the consistent and superior quality of services, and, of course, the third thing which we’ll be announcing, which I’ll do, and then Steve is going to be discussing the next level of enabling processes.

But the next solution is unified integrated branching, which will make this thing happen. And with this solution we’ve converged your infrastructure from many boxes to one simple-to-implement solution that delivers truly a seamless experience.

You’ve heard many of us quote statistics. I mean, the one we’re using is in a typical branch you have seven network devices that the IT group has to manage, with typically no resources on site. With this solution we combine routing, switching, and voice over IP capabilities, along with all the capabilities from Microsoft, into a single device.

So, of course, you can see the bottom line, the benefits of this is a cost-effective, secure deployment of new branches, which for many businesses is the engine of new growth.

Now, what’s truly exciting about this solution is not only integrating existing capabilities with the first two here, but this solution was actually developed with our people working together with development resources using IT technology and new package reduction skills to be able to put this thing together, which I believe is really unique in the communications and the IT world today.

And this is the type of capability which we’re very confident we’ll be able to deliver on the vision not only for 2007, as you look at 2008, 2009, 2010, and beyond.

So, three solutions which we communicate for like a great example of how the two companies are collaborating deeply to truly start transforming communications. And we’re very confident we’re working on a platform that’s open, that’s extensible, and that’s real. Quite a few of the announcements or analyst reports after the July communications, or some of the other announcements the other companies over the last six months have called this a chartware or marketecture, and what you see here today is a true integration of capabilities along with completely new services, and Steve now is going to discuss how this alliance will be enabling completely new business processes. Steve?


In a sense, I think the demo was fantastic at showing you kind of the power of smart, unified clients. And Paul did most of the demonstration, if you will, either with a wired phone or with a PC; the same experiences can also be projected onto smart mobile devices. And I think it’s super powerful if you take smart, unified communications and you put them together with the right level of integration on the back-end, and that integrated scenario where we get good integration but there’s still a PBX, and there’s still servers running e-mail, IM, et cetera, and I think Mike did a good job of fleshing out, the demo fleshed out why end users should be interested, the products Mike described really flesh out the scenario.

So, what I’m going to do is pick up on that theme, and say now let’s go out to the world of transformation when we actually do the work to more fully integrate the back-end, so you get common development tools, common development platform between all of the communication and collaboration types, and all the business process types, as well as common management and infrastructure in the datacenter. And the question is, what do we get? What else comes in that environment?

And I think you can think about it in some senses at all the levels shown here at the stack. The first thing we do is at the network infrastructure and IT and management infrastructure we really pull these things together, not just at the directory or identity level, but you get common sets of alerts that you can take care of and process. You don’t have kind of one directory disguising the fact that there’s really still multiple things being managed for identity. You really get to integrate and pull that stuff together in a very strong way. You have one quality of service management approach, a lot of good things happen.

But I think the even more powerful things happen at the upper layers in terms of the kinds of applications that can be developed. We really then do have one common platform, not only common against e-mail, IM, voice, video, but also common development platform against CRM, ERP, customer billing, call center; you name the application, there’s one way to build these applications.

Of course, in the world there’s still some heterogeneity. There are going to be things that you have on UNIX systems, here, there, the other place, and the work that we’ve been doing in general on our development platform around Web Services and services-oriented architecture lets you still have just the two that you know today, instead of an additional development platform.

You get a little bit of a sense from some of the demonstration on where the benefits might be of integrating communications into line of business applications. I did a session yesterday with some customers here in New York from the financial services industry, and we were walking through let me call them collaboration cases with our SharePoint product. And it’s hard to tell, is SharePoint a collaboration tool, or is it a line of business application tool, or is it a little bit of both? And I think most of the customers in the room would say it’s certainly both, and we need to talk about the benefits that you get from both.

Well, now you can add on real time communications, voice, video, et cetera. And you’d say, is that really just a collaboration and communications platform, or should it be part of developing line of business solutions? And whether it’s click-to-call type applications on the Internet, whether it’s kind of advanced call center applications that really pull together the way not only you communicate internally, that you communicate out with your customers; whether it’s expertise and location finding. You know, inside SharePoint itself with our new release that has just come to market we have sort of a notion of people and their expertise and how that all works, but, of course, the first thing you want to do once you know who the expert in your company is on a given topic is you want to communicate with them, and you want to communicate with them how you want to communicate with them.

So, this notion of a common platform, common with the rest of the communications infrastructure, common with the rest of the things that developers in your IT organization understand, really then leads to a platform in which line of business applications will be broadly enhanced with communication capabilities.

One of the big themes we hit repeatedly at Microsoft is this notion that in a sense the world has evolved this way. First we had line of business applications in IT; that’s kind of where information technology grew up. Then along came the PC and a world of personal productivity grew up.

And one of the themes of innovation over the next several years is bringing the world of business applications and the world of personal productivity together. How do you handle exceptions? How do you do analysis? If you have a customer whose invoice looks wrong, how do you bridge these two worlds? And a key part of bridging the two worlds comes from having the ad hoc communication and collaboration of the personal productivity world integrate with line of business process. And it’s only through the kind of collaboration that we’ve put in place with Nortel and this so-called transform phase of our roadmap that I think you’ll really see the full power of this sort of, what shall I say, integration, full integration of personal and team productivity with line of business applications.

A good example of that is really the contact center or call center, if you will, inside companies. And one of the projects that we’re working on not for ’07 but for a subsequent year is bringing the Nortel Multimedia Contact Center as an application that really fully integrates with our Office Communications Server, and delivers this kind of benefit, empowering agents, customers, IT network administrators. A customer wants to access you via IM, do we have interoperability, MSN, Yahoo!, our own Office Communicator for inside business; this stuff can get pulled together so that however your customers want to contact you, there’s one integrated agent workstation inside the call center, and that’s essentially an application that Nortel is building on top of this unified communications platform that we achieved in the transformed state.

Rather than just have us talk and talk and tell you what we’re up to, we thought it would be good for you to hear from a customer who has joined Microsoft and Nortel on this journey. And so what we’d like to do now is to invite up on stage Johan Krebbers. Johan is a group IT architect at Shell, who’s been at Shell for over 25 years, and he’s going to describe some of what is going on there in terms of unified communications. Please welcome Johan Krebbers. (Applause.)

JOHAN KREBBERS: Okay, good afternoon already.

So, I’m going to talk something about — first about — something about the Shell environment, what our challenges are, and then how this whole UC environment can help us.

So, a little bit about Shell. Most of you, maybe all of you have heard about the name Shell, so I’m not going to spend a lot of time on what Shell actually does. But what I will talk about is our main drivers, but would also start explaining what our issues are.

So, our main drivers nowadays are frameworks to develop our upstream. Upstream is really the exploration and production of oil and gas, so trying to find and allocate oil and gas resources. And the second thing is having profitable downstream. So the downstream business is all the business about retailing refineries, the retail stations, 45,000 retail stations around the world, et cetera. Those are the two big drivers, so getting the upstream sorted out, really developing that, and profitable downstream.

We also have to realize that we are very widespread. By developing in the upstream, the problem we always have with upstream is you never know where you’re going to find your oil and gas, and you know we don’t find it in the middle of New York, so you have to go to the middle of nowhere, like we have about 7,000 people in Nigeria, and we have about a couple of thousand people at an Sakhalin island in Siberia. We’ve got people all over the place doing that kind of business.

And that even becomes more important nowadays because we also are moving far more to a global operating environment. Our exploration is a global frontier. That means people are sitting around the world at their locations, because it’s important that we bring the world to the people.

And the second thing is look at our retail environment. It is a global environment, retail is a global business at Shell, again people sitting around the world. Those people are part of the business at retail. They do need to communicate quite a lot, so there are virtual teams sitting in regions, sitting not just in regions but look at our research environment. We’ve got research over here in Houston, in Texas, we’ve got research in Europe, we’ve got research in India. Those people do work, to inter-work a lot, to inter-work information, inter-work communication.

And another thing which is very particular for the oil and gas industry is that in the late ’90s oil was very, very cheap, and those days were allowed $10 per barrel. If you look at today, I think it’s about just over $50 a barrel. So investments were not done in the oil and gas industry. We have now the facts of that, and we’re going to lose a lot of stuff in the coming years; we’ve got a big change in our environment and where we lose a lot of expertise because people are going to retire, and we just struggle nowadays to find new staff to work in this environment. And we lose a lot of our expertise, so the expertise you’re left with we need to use far more efficiently than we do today. And again we’ll come back to that, that whole area of unified communications can help with that whole environment.

The other thing also will be that we will really move to an environment where you could say the whole environment around Shell will be superior in the sense that we have to far more inter-work with non-Shell consultants, third parties, joint ventures, et cetera, because for us to execute products in the future we won’t have the internal staff anymore, so from a collaboration point of view we need to offer the came capabilities as let’s say what the Shell staff has, and non-Shell has; that whole world needs to come together, which is a change from today, because today really it’s collaboration within the Shell environment. We have to move to a world of collaboration where inside Shell and outside Shell it really doesn’t make a difference.

So, finding new staff is a challenge, and you have to do a lot of things to make your environment attractive to the new staff. So the work environment, the technology people can use is important, and also it needs to relate to how people used to work maybe at university, at home, et cetera, because that’s really where they’re coming from, and the environment needs to be aligned.

Of course, we have a large collaboration environment today. The biggest problem we have with collaboration is not being used to the full extent, because it’s too difficult to be used. We’re not an IT company, so our people really use only IT as a tool to do their job. But collaboration, yes we have videoconferencing, we’ve got Web conferencing, we’ve got all those tools we have, but they don’t come together for the average user in an easy enough way. And therefore use is very mixed, and therefore we don’t get the benefits of the whole environment.

And on the PBX side we have a very mixed environment around the world of PBXs. So, we have, you can name it, you must name it, we will have it somewhere around the world. Because of local restrictions of what you can do, you can’t do everything around the world the way you would like to do it.

So, that’s really our environment today. It’s very widespread, people all over the world, shortage of staff, shortage of knowledge, and we can make better use of that.

So, how can the whole UC environment work for that? The first thing which is very important is to come to a single user interface. Users are used to Outlook today. So there if you talk about e-mail, they will be using Outlook, so they know that world. We will come to something similar for the collaboration, for the real time collaboration environment called the Microsoft Office Communicator, but we need that single user interface, as demoed over, here to make access much easier.

And I would say the third element of this is your SharePoint environment. Really if you talk about information sharing, information is real time communication, but also you need to have access to that information. If those things don’t come together, if you just have your RTC environment where you don’t have info sharing, then you still are not ready yet.

So, the single user interface is important, but also not just for your desktop environment, also for your hard phone environment when the phones are coming out with also Office Communicator as a user interface, and also for your mobile environment.

And the other element is — and we had the demo of that — is getting your Exchange integrated. We’re going to roll out Exchange 2007 and have your voicemail coming out there as part of the Outlook environment, so things come together. And the saving over there is, of course, we don’t need to maintain our voicemail capability we have today at every site around the world, because you can just take that out.

So, by using the soft phone environment whereby the soft phone is being managed today by an LCS environment, over time by an OCS environment, and your hard phone is being managed by another environment, but those two things come together, and we used to have a single dial plan, so they come together as one environment, and that is happening today, that’s working today, and that’s what we’re doing today.

So, a user sitting on a soft phone in Nigeria will have normal access to use on a hard phone in Siberia or in the Netherlands or wherever he happens to be. It’s a single environment for the user.

And when we travel, when I go from the Hague in the Netherlands, and I spend time in Houston, my phone goes with me, my phone number goes with me, because we’ve got global roaming implemented there. So wherever I go, my number goes with me as part of global roaming in our Nortel setup.

Another element that is just often overlooked, and there was a reference about it earlier, is Active Directory, because a lot of these systems need AD to function. So you really need to have in place a proper Active Directory, which is a must of lots of the information being used in the UC environment. So, AD needs to drive this throughout the environment, and so have the kind of background in place is quite essential to start making optimum use of this material.

Look something about the whole deployment environment. Our whole focus is to get the switches only in three locations, so that’s Amsterdam, Houston in Texas, and (Sabijwa ?), which is Kuala Lumpur in Malaysia, and that’s all we want to put our switches. Because putting hardware in countries is a nightmare often. If you have to go to Africa, if you have to go to South America, it’s very time consuming to get equipment into those countries. So if you can avoid it, that’s a big gain. So put stuff in only those three sites.

And, of course, you all say what about reliability, what about survivability of PSDN gateways. Of course, you can still put them in those; if there is a need for that, you definitely should do that. But put the intelligence, put the switching capabilities at the minimum number of sites, ideally one site, in our case we go then for three sites.

And, of course, have that full integrated with the OCS environment because also OCS, LCS then will be at the same site, and the same with the Exchange environment. So, SOA deployment is very much from a central position.

Then actually what happens at each and every site, when we go to a new site, they immediately connect to the center, because it’s very easy now if you have a site, you’ve got a central hub in place that you purely have to go into a new site, who gets the soft phone, who gets a hard phone, you connect it to the center back at Amsterdam or Houston or in Malaysia, depends on where you are in the world.

So that’s for new sites. Let’s say to refurbish sites; exactly the same approach. For existing sites we just decide when a PBX has been written off or when we need to do investment in a PBX: then that site will go to the new environment. So we’re not spending real time on integrating with the PBX, I will just say on new sites from day one, existing sites whenever the PBX is written off or needs to upgrade we go out.

The rollout today, today we have rolled out in a number of sites around the world, in India, in Egypt, China, a lot, a number of other sites where we rolled out the combined LCS-Nortel solution, so having soft phones managed from the LCS environment, hard phones from the Nortel environment.

That’s it in summary.

MIKE ZAFIROVSKI: Johan, thank you very much. (Applause.) Thanks again, Johan, big job, bold vision, and we look forward to helping you making it happen.

But the last part of our presentation today will be on services. Services capability is critical for our company. We’ve made commitments. One of our strategic objectives is to extend our advanced services capabilities under (Dittmar Wense ?) and his team’s organization.

But Microsoft, and, of course, services is very important for the future and the implementation of unified communications. So, the combination of Microsoft, Nortel, and our partners really are developing services capability that brings the world of IT and telecom together.

And just one small example of what we have done in a very short period of time, I discussed the Converged Office a few minutes ago, but just over the last six months we’ve developed 11 implementation services to make that opportunity real. Also we are a proud Gold Partner, certified on Microsoft products. Also we’re going to be opening up two collaboration centers, one in Raleigh, North Carolina, and one in London. They have jointly, right, Nortel and Microsoft individuals, collaborating and discussing what-if opportunities on what we should be doing next.

And in addition, we’ll be leveraging very extensively our ecosystem of partners. A few of you are here in the audience today, and we very much appreciate you being here, but again we very much look forward to driving the unified ecosystem to make it really easy for the end customer for us to be able to deliver on the promise.

And basically what you’ve seen from the demonstrations already, we do believe the unified communications is best if you see it, feel it, and that’s the best way to give you a sense of the confidence that this is real, that it’s happening, and it’s only going to accelerate.

We have 20 centers today, and we’re going to open up 80 more, and have 100 by the end of July. And I’d like to personally invite you to come and visit one of those sites, and see me, the field professionals from Nortel or Microsoft in a center closest to your place of operations. It’s a great chance for you to go there to discuss, to go to whatever discussions, whatever you’d like, productivity, customer service, sales force activities, communications with the branches, or any other proposals, any other ideas which you may have. And again we do believe that the staff is very experienced people to be able to address your most probing questions. And, of course, our professionals are very much looking forward to also coming to visit you at your place of office.

Last before we wrap it up, we have one last video to try to provide as much of people to do the work, so this is a video discussing what you’ll be able to see in those centers. Can we have the video, please?

(Video segment.)

STEVE BALLMER: Well, we want to wrap up today by both getting a chance to thank you and take your questions. I hope you get a sense of just how we see customers like Shell, BT, and others starting to embrace this innovative communications alliance. I hope we’ve given you some food for thought on what’s available this year in terms of the ability to move forward. And I hope you’ll share some of our enthusiasm for the power of smart, unified communications clients, and the power that we can bring together in terms of the convergence of applications and communications.


MIKE ZAFIROVSKI: Steve, thank you.

Back in July we said this was a gutsy move for both companies trying to marry our deep knowledge in voice and networking with the capabilities of Microsoft, but we’ve put customers at the forefront of that to truly drive unparalleled opportunities for the customers. So this is not only an exciting opportunity for Nortel and for Microsoft, this is really putting the customers at the forefront of everything we’ve been trying to accomplish.

I’m very confident that we have the right resources at both companies to make this real. It’s not going to be all easy per se, but there’s the commitment, there’s the knowledge, there’s the passion to make this real. And with the type of innovative CIOs, both CIOs are prepared to take the bold actions, I’m very, very confident that this very, very promising story is only going to accelerate.

So, Steve and I thank you for being here this afternoon, and we look forward to answering any questions which you may have. Thank you again for being here. (Applause.)

QUESTION: Hi, Mike, Steve.

The question I have is this demo that Paul gave looked very familiar to a demo that a lot of us have seen given by IBM and Avaya and others. And I’m wondering, first of all, if you could explain how you’re differentiated from them, and why you’re a preferred solution compared to theirs, which is theoretically more open, or so they would argue.

STEVE BALLMER: Let me describe why I think ours is differentiated. I think this is a very open solution. We have an architecture that lets us talk through kind of the CTA approved protocols, if you will, talk to other PBXs, et cetera, so it’s a very open solution. Like everything on Windows, it’s an open interface, programmable environment, which I think is also quite strong.

But I don’t know, I didn’t go look at the demonstration from Avaya, I don’t think you’re going to see the integration from anybody else into other information management application scenarios in the office that you’ll see from us, the integration with Outlook, the integration with SharePoint, the integration with the rest of the Office experience. I mean, literally we’ll be able to show you presence, if you want to see it, inside, on the comments inside an Excel spreadsheet. That’s how deep we think we can and should and need to drive that integration, and I think that’s something that we are uniquely well positioned to go accomplish.

I’m sure everybody will pop a screen when a phone call comes in, but that’s different than really getting intelligence in the client, which we believe in more than the other guys, the guys certainly you mentioned, and getting unification across a variety of IT experiences, including the full range of communications experiences. So that’s number one.

Number two is really the differentiation point I made about the development platform. I mean, at the end of the day we as a company and we and Nortel have embraced this idea that says we want third parties building value-add around that. We don’t introduce another development platform. Some guys will have Java, some guys will have .NET, but it’s one of those two, and it’s one that’s consistent with the entire development environment down on the client, and the rest of what you get in your communications infrastructure with Exchange, with SharePoint, et cetera. And I think both of those things are quite differentiated versus whatever you might hear from the rest of the players in the game.

MIKE ZAFIROVSKI: If I can inject two comments, I mean, first of all, there’s a real roadmap here. As I said, the converged office exists today for small and medium sized businesses. The other solutions, including extending that to large enterprises, the second half was the three solutions, unified messaging, conferencing, and integrated brands, that’s brand new. You may have seen a demonstration someplace else. This demonstration from us as well will give you very specific dates, Q2 and Q4 this year. And on top of it a very specific roadmap that goes from 2009, 10, and beyond. Steve and I touched upon that with the roadmap internally that the teams are working on is much deeper and much more specific. So, I think those are a couple, more than a couple sound bites to answer that question.

I guess we answered all the questions in our presentation, Steve.

STEVE BALLMER: No, here you go, we have one.

QUESTION: Hi. I’m from the UK, and one of the biggest questions we always have in the UK is timing and scheduling. Of course, this is a thing that you’re doing for the U.S. in terms of your roadmap; what’s the like, in your opinion, of delivering this in Europe? It’s going to be a lag, isn’t there?


STEVE BALLMER: No, I don’t think there should be a lag at all, frankly. Certainly the technologies that we showed will be delivered essentially globally: Office, Office Communications Server, our new version of Office Communications Server will come out within a few weeks, globally at the same time. There will be some languages that would lag slightly, but not in any material way. The Nortel technologies will be available globally.

And frankly, particularly as we talk about global customers, I don’t know what to call Shell. I know officially they’re sort of Dutch, they’re sort of English, and there’s a whole lot of Shell people in Houston, and now I also noticed Sakhalin Island and Nigeria, Kuala Lumpur. They’d better all come at the same time or we’re not going to be able to do the job we need to do for global clients like Shell.

MIKE ZAFIROVSKI: I’ll make another comment. Mobile communications, I mean, I would argue that they’re more advanced outside North America for the last 10, 15 years. PC computing has been more advanced, and this is generically speaking, in North America. And I think this part of the solution actually takes the best of both and brings it to the customers, again Shell, and there’s BT. I mean, what company are you with?

QUESTION: (Off mike). We’re not in the private sector. So it’s very different for me to justify what you’re saying. I find it very exciting, but I want to see the outcome, the deliverable here. Then that sense will probably be the key for me.

MIKE ZAFIROVSKI: There’s one just outside London. We put in a collaboration center as well.

STEVE BALLMER: We have too many mikes. We have a mapping problem. We’ll have to get somebody writing an algorithm or something.

QUESTION: I was wondering if you could tell me about what kinds of companies you’re aiming this at. Certainly Royal Dutch Shell and the oil and gas industry. Are there industries and smaller-sized businesses?

And the other thing I was wondering about was the videoconferencing. Some other companies like Cisco are touting the ability to imagine you’re in the same room with somebody else with their videoconferencing. How much are you going to develop that?

MIKE ZAFIROVSKI: If I can answer the first question, Steve, maybe you can take the second.

Our, meaning Nortel’s typical pursuits historically have been large enterprises. Over the last 12 months as part of this transforming enterprise we’ve put a significant emphasis on small and medium sized business. The converged office, which we discussed before, has been a terrific way to upgrade small and medium sized businesses from the old solutions to an IP, voice over IP solution. That has been getting great traction.

What’s happening now is happening, although we’ve been focusing on enterprises, large enterprises, we’ve not done a very good job driving global accounts. Another major emphasis has been to we have an organization now driving the solutions. On a global basis currently it’s about 60 customers. And I really believe that this will be applicable to both. So we’re doing a very rich partnership with a number of partners that will be helping us deliver this. And from our standpoint we are preparing cases to go both after the large multinationals as well as to become much more relevant in the small and medium sized business, and the traction within our business has been very positive, and that momentum has only accelerated since the announcement last July.

STEVE BALLMER: I’d say, just to pick up on Mike, any company that’s large enough to, quote, have an IT department or an IT infrastructure, we think the benefits here apply, because that means a company that’s big enough to put in a server effectively or a PBX.

For much smaller companies we also need to have a set of solutions. We don’t have anything we’re saying about that today, but we’ve got guys hard at work on that as well. But this is really when you get to the point that somebody has an IT department and some infrastructure on up.

And I don’t particularly expect to see adoption be faster or slower in any size company. In general big companies will have a little bit more ability to kind of put resources in studying new technologies, so we might see faster adoption. And the partners who deliver services in more of the midsize companies are more likely to be some of our local partners, and Nortel is more likely to drive some of the bigger accounts, I would say.

In terms of video, we’re very keen not only on video and videoconferencing, sort of you can cross two ideas: how important is video to us, very; and how important is meetings or conferencing to us, and the answer to that is also very. When we ship Office Communications Server later this year, we’re also going to ship I think a fairly exciting new hardware device that’s a room camera, we call it Roundtable. It’s got a 360-degree view, and really helps kind of — with the right software will really tend to bring meetings alive remotely in a very different way than we think about today. If you put that together with the multimedia conferencing capabilities that Nortel has, and you have a very powerful solution.

I think it’s great to have a lot of companies innovating in this area. I think we can all probably agree on two things. Number one, today’s videoconferencing solutions are very, very expensive. It’s tough management to decide which conference rooms get a videoconferencing system. I think it might be nice to democratize videoconferencing. And number two, I don’t know what your experience is like, but I always seem to wind up with a technician standing by every time I have a videoconference, even with our telecom partners. One might think we could also democratize it by making it simpler and easier to use. And I think that the combination of what we’re doing in software and with this Roundtable camera, and the work Nortel is doing will take a long way down the path of democratizing the category. And it’s good to have other guys also trying to innovate, because, boy, is this a category that needs innovation.

QUESTION: Hi, guys. Great announcement today. One point in particular: The game plan for your transformation phase, where if you think about this, this is kind of a process of extracting like human and system delay out of business process. And it’s a huge system integration challenge for most organizations. So, how are you guys really gearing up or what kind of partners are you going to bring into play to really help companies take advantage of this third phase that you’re talking about, this kind of transformation phase?

MIKE ZAFIROVSKI: Great question. A big part of our strategy of recreating Nortel is to become much more effective and advance the services. Today, about 20 percent of our company is services, which already 20 percent of our revenue is through services. We think that number should be significantly greater. As I said, we have made an announcement to upgrade our organization. So we do believe that the services, where that to Shell was discussing all the challenges they have is that the more of those services we can provide, along with very sophisticated partners, BT, for example, this is in Europe and in other places. So we believe this is complementary to the work which we’re currently doing with our partners, and that what job number one is as we move more and more toward a unified communications front.

STEVE BALLMER: It’s different, but I would also add in the sense it’s analogous to what happens on any IT system that you put in, particularly either in an enterprise or a mid-market firm. I mean, there are literally we have 500,000 system integration partners around the world. And they range from very large companies like Nortel or Accenture, Infosys, down to very small companies that might have someplace from two to five to 20 or 30 employees.

And we’re going to need to get people educated and trained. Large companies tend to like to buy services from large companies, medium sized and small companies tend to like to buy from other medium and small sized partners. So, we’ve got not only a skilling issue at Nortel, but we’re also going to have to get out to partners just like we do with Exchange, like we do with Active Directory, like we and our competitors have to do with ERP products. That’s going to be a part of this in order to bridge the complexity gap.

QUESTION: First of all, great job. Second of all, it’s a two part question; one is more broad, and one is a little bit more specific. The first one is, do you believe that the typical enterprise is familiar enough with the concept of unified communications and what the benefits are? Do we need education to bring them up to speed?

And then the second part of the question is, I noticed in the unified messaging part of the announcement that there’s interoperability via SIP. And that would lead one to believe that other PBX manufacturers that have SIP interop would also be able to have unified messaging interoperability. Thank you.

MIKE ZAFIROVSKI: No, yes, yes. (Laughter.)

STEVE BALLMER: I think that’s actually —

MIKE ZAFIROVSKI: No, but I’m serious, in terms of it from my perspective there’s not enough of knowledge, and part of this will be on a much more proactive marketing campaign. In general at Nortel we’ve done a very poor job communicating capabilities which we have and the benefits it can bring to customers. That’s even before this alliance in terms of people knowing enough about this, absolutely not, so we need to have a proactive communication campaign, absolutely yes. And there’s opportunity there for other partners.

STEVE BALLMER: No, we do support SIP, and other people can choose to integrate. Nortel has embraced that, and we think that’s great, and hopefully other people will also choose to embrace it, and, in fact, it’s important to both companies because if we want to get a lot of this stuff to happen, and Nortel wants to sell a lot of services, it’s actually quite helpful not to have to swap out the entire installed base of PBXs in order to drive this. So that’s kind of a joint opportunity.

The one thing I would say, the word unified communications I joke with our team, they know I don’t love it because it means everything and it means nothing, and it doesn’t have a specific meaning to any one customer. But the truth is this is not the hardest communications challenge we’ve ever had. This is one that if you do a demo, people say, I get it, I want that. You know, when you try to explain SOA, Web Services, blah, blah, blah — I do a lot of that every day, too — that’s a little harder to get out and kind of explain unless you’re talking to people who are really technical. You go out and do a demonstration, and people say, okay, I get it, I’d like something like that, that looks pretty good. You want to call that unified communications? Okay, we’ll use that word from now on. But in this case I think the demo does help resonate with people quite strongly. Whether we do a demo or other guys do demos, the demos bring alive an important transformation that’s going to happen.

STAFF: We have a final question, and this comes from one of our Live Meeting audience members. What is the strategy for integrating SMS into the platform?

STEVE BALLMER: SMS text messages or — okay. We have a product called SMS at Microsoft, so I have to be careful.

The problems with SMS integration are more business challenges, frankly, than technology problems. We have problems. They’re more opportunities that require business solutions than technology solutions. The SMS business model is quite different than the business model that applies to a variety of other forms of communications today. And there are some places where this stuff is very well integrated. I get my SMS messages today through Microsoft Outlook. I’ve signed up; it’s a service that you can get if you want to get it, but it does require the right business configuration, either between the end user and the operators, or operator I should say, or between the company and the operator. And I think there will be evolution in both the business models that we think about for enterprise telephony, the business models that the carriers are pursuing with SMS, and I actually expect that we can think about that becoming an integrated modality, too, but right now I think the level of integration is going to be primarily at the rich client device side because that’s the only place to do it in the context of today’s per message model from the operators.

MIKE ZAFIROVSKI: Thank you for being in New York on this first real week of winter, much appreciate your interest, and again this is not only exciting for Nortel and Microsoft, but very much we want to make for this opportunity to work for you. Again, thank you for coming.

STEVE BALLMER: Thanks. (Applause.)