Microsoft, Cisco CEOs Vow To Play Nice And Interoperate

In a discussion moderated by TV interviewer Charlie Rose, Microsoft CEO Ballmer and Cisco CEO Chambers labored to map out the contours of their "sophisticated" alliance. As the lines blur between software, Microsoft's domain, and networks, Cisco's lifeblood, the two companies face both an intensifying product rivalry and intensifying customer demands for smooth interoperability between their wares.

"Meeting customer needs" was the mantra threaded throughout the talk, with both executives emphasizing that while they want to win as many deals as possible, they're resigned to playing nicely with rivals in a heterogeneous IT world.

"We want to have people do lots of voice communication from within our software. I hope most of it runs through our back-end infrastructure, but I suspect some of it will also run through Cisco's," Ballmer said. "We will have that level of interoperability." Companies that take the outdated view that all peers are either friend or foe will be left disadvantaged and isolated, Chambers said.

At an event ostensibly devoted to celebrating collegial alliances, the two executives still threw a few sharp elbows. Asked about Cisco's deepening presence in the software market, Ballmer answered, "I have great respect for John and Cisco as a company, but anything they do and we do, I have more respect for us." But Microsoft and Cisco are good enough buddies to handle that kind of trash talk, Ballmer quickly added: "That's the thing we have learned to say to each other, and that's okay."

In practical terms, smoother technical interoperability between Microsoft and Cisco opens new opportunities for VARs, said one joint partner attending the event.

Distributor D&H launched a new program in May to encourage its resellers to build end-to-end solutions coupling Microsoft wares with Cisco's. D&H's initial analysis showed that 90 percent of its resellers worked with either Microsoft or Cisco, with very little overlap. But when partners sell technology from both vendors into a deal, transaction size increases by an average of 40 percent, according to D&H Vice President of Marketing Daniel Schwab.

"I think it's exciting that they're talking," Schwab said. "I think both companies admitted today that if they don't focus on interoperability, they leave themselves exposed to not be the first market maker in this Web 2.0 world. They both view this as an inflection point."

"Market transition" was the phrase Chambers deployed throughout the event to describe what he sees as a key shift that will play out over the next three to five years. "I believe that if you don't take good business risks when market transitions occur, you let down your shareholders, you let down your customers and you let down your employees," Chambers said.

Cisco's business risks include an aggressive push into the software side of the "unified communications" market, illustrated through splashy moves like its $3.2 deal in March to buy Web conferencing leader WebEx. Meanwhile, Microsoft is beefing up its VoIP product portfolio and burrowing deeper into the voice channel market.

But even as their varied expansion efforts put them on a collision course, the two companies insist they won't put customers -- or partners -- in the middle of their tug-of-war. Interoperability will remain a priority, executives pledged.

"I think one of the reasons we're here today is that we have a lot going on in interoperability that we haven't been as proactive in telling people about," said Robert Lloyd, Cisco's senior vice president of U.S. and Canada operations. "What we have found over the last five or six months, working with distributors who are training their VARs on bringing together Cisco and Microsoft to solve customer problems, is that when they look holistically, VARs see a bigger opportunity."