Microsoft, Cisco VoIP services/Unified Communications face-off may not live up to hype

Cisco says it's taking Microsoft's entry into the VoIP market seriously, but neither vendor plans to make the channel choose sides any time soon.

The much-hyped, as-yet-nonexistent battle for Voice over IP (VoIP) supremacy between Cisco and Microsoft won't force channel companies to choose sides for quite a while, some observers said. In fact, it may not turn into much of a fight at all.

Cisco executives -- including CEO John Chambers, who identified Microsoft as a prime competitor in the unified communications market during Cisco's Partner Summit in April -- said Cisco is at least three years ahead of Microsoft in VoIP. They also tout the company's leading market share in enterprise networking and VoIP, as well as its 10-plus years of experience in the voice market, dating back to the days when the company merged data and voice networks to bypass toll lines.

Microsoft, on the other hand, just unveiled its first true VoIP products this year. Microsoft's dominance in desktop and back-end applications gives it a good launching point for VoIP products and unified communications, which integrate voice, email, instant messaging and video, said Richard McLeod, Cisco's director of unified communications solutions for worldwide channels.

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"[Microsoft and Cisco are] definitely coming at it from strong positions and from different angles," said Robert Arnold, an enterprise infrastructure analyst with Current Analysis in Sterling, Va.

Cisco has been the voice market-share leader in both enterprises and small and midsized businesses (SMBs) for at least the past three years, McLeod said. The company ships 1 million IP phones per quarter and increased its unified-comunications revenue 38% during the fourth quarter of 2006 compared to the fourth quarter of 2005, he said.

Microsoft's first major foray into the VoIP market came last year when it announced it would sell a variety of IP phones and other hardware, that its Office Communications Server would act as a software-only replacement for call-control products from Cisco and other VoIP dealers, and that Microsoft had formed a partnership with Nortel under which it would integrate Nortel's IP switches and software with applications such as Microsoft Exchange, Microsoft Office Live Communications Server and Windows SharePoint Services.

That deal combine's the voice experience of Nortel with Microsoft's strong background in applications, said Paul Duffy, Microsoft's senior production manager.

Microsoft displacing Cisco in VoIP will be like Cisco trying to displace Microsoft on PC operating systems.
Dan Holt, CEO, Heit Consulting,

In March, Microsoft announced that it will build even more VoIP functionality into its own products and and released Office Communications Server 2007 for VoIP and unified communications, as well as a client version, Office Communicator 2007.

McLeod said he is "very confident" about Cisco's chances against Microsoft's current VoIP offerings. But he acknowledged that Microsoft has some strengths to build on.

"Part of it is based on the evolving definition of what communications is," he said. "Clearly Microsoft is a strong player in the corporate email communications market, similarly with instant messaging."

The biggest drawback for Microsoft is the dearth of details about its current VoIP products, Arnold said.

"They still haven't provided a full feature set to look at and compare to a traditional VoIP," he said. "I wouldn't back a product I hadn't seen yet."

Microsoft executives are hearing otherwise from their customers, Duffy said.

"Customers see us as having a solution right now," he said.

Dan Holt, CEO of Heit Consulting -- a VoIP integrator that is a channel partner to both Cisco and Microsoft -- said he doesn't expect that Microsoft will have a chance in the VoIP market anytime soon unless it buys a company like MiTel or Nortel.

"Microsoft displacing Cisco in VoIP will be like Cisco trying to displace Microsoft on PC operating systems," he said.

Holt noted that Cisco has an advantage because it controls more than 90% of the router market, which makes it easier to install a VoIP system. And without that infrastructure, it will be hard for Microsoft to make an immediate splash, he said.

"Microsoft has a lot of cash on hand, but even with all of the investments, it took Cisco five years to truly have a solid VoIP solution," he said.

Both McLeod and Duffy said their companies are committed to selling VoIP through their channel partners. Although many value-added resellers (VARs) partner with both vendors, there does not appear to be any immediate conflict.

Channel partners won't have to choose sides just yet, Arnold said.

"The resellers are going to stay with what they know, to begin with," he said. "When either Cisco or Microsoft prove that they have a complete product or a superior product, that will happen."

It would do a disservice to clients to make them choose one vendor or the other, McLeod said, because a key benefit of Cisco's VoIP products is their ability to integrate into existing networks.

"We've actually encouraged our partners, for a number of years, to build their Microsoft competency," he said.

Cisco may rethink its position if Microsoft becomes more of a VoIP threat, McLeod added.

"We'll cross those bridges as they happen," he said.

Cisco has a reputation with its partners for not placing restrictions on what other vendors they can do business with, but Holt agreed that could change if Microsoft succeeds in VoIP.

"[Cisco has] been lenient because they've been so dominant in the market," he said.

Duffy similarly stressed that Microsoft has no plans to make channel partners choose one vendor over the other in the near future.

"We're really doing a lot of work to integrate," he said.

If it does get to that point, several factors will go into channel partners' decisions about which vendor's products to sell.

Holt said he would choose Cisco because his clients -- credit unions and other financial institutions -- could not afford to take a risk on Microsoft's unproven VoIP products. The small and midsized business sector would make a better proving ground for Microsoft, Holt said.

Other factors include the quality of the products, the existing relationships with the vendors and any potential incentives -- such as higher margins or shorter sales cycles -- that the vendors may offer, Arnold said.

"The competition's definitely a good thing for the channel," he said.

Let us know what you think about this story; email: Colin Steele, Features Writer.

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