The $1B Question

In a press release yesterday to announce a strategic partnership between Microsoft and Nortel involving unified communications, Nortel CEO Mike Zafirovski said the four-year deal could generate more than $1-billion in sales. The question that was not answered properly or articulated well enough is how and when these sales will happen. How much, for example, will be from hardware, software and services – a key consideration given each business has different profit margins. This led some analysts to suggest the $1-billion will happen by 2009, while others suggested it could happen over the four-year deal. A key issue is when the contract will start to generate revenue. Microsoft has been talking about how its unified communications portfolio will be rolled out this year but product delays have become a familiar tune in Redmond recently. Another question that needs to be explored is whether the unified communications market is ready to see strong growth. The idea of seamlessly blending together e-mail, voice, video and data is not a new concept but one that has been modestly embraced by corporate customers. Maybe it’s just a matter of time as IP networks become more ubiquitous, and companies start to leverage them to launch different applications. But as it stands, there’s a lot of excitement (particularly coming from Microsoft and Nortel) these days but not a lot of “meat”. By the way, another interesting angle to the Microsoft-Nortel alliance is why Microsoft, which is intent on becoming a big player in the business communications market, didn’t use some of its $35-billion of cash to buy Nortel. Microsoft CEO Steve Ballmer talked about how each company had its core competencies and they will form a strong partnership – but it’s an intriguing possibility.

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One Response to “The $1B Question”

  1. Anonymous Says:

    Always thought of it before why MSFT does not just buy a telecom vendor, not necc Nortel but anybody even the pre-millenium boom.

    One reason is that it will be prevented due to possible anti-competitive laws. figure this… already owns the apps on the desktop, PC OS monopoly (or duopoly if MAC OS and LINUX is the next best alternative), messenger, etc.. If it goes into telecom, then it controls everything on the PC, a home box like Scientific Atlanta as well as the communications to put it all together … and imagine what can happen with its marketing, channels etc.

    So a partnership is better as the end goal can be accomplished without all the anti-competitive attention.

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