Microsoft and Cisco: Cosy competitors

Three years ago, when Cisco and Microsoft launched competing security solutions, they looked to be on a collision course, but on Monday the companies' chief executives took the stage together to discuss working more closely together.

Microsoft chief executive Steve Ballmer and Cisco chief executive John Chambers said the companies will continue to compete head-to-head in several markets, but they will also work together to make sure their products interoperate.

The executives, who answered questions from business journalists at a press event in New York on Monday, said the decision to work more collaboratively is being driven by customers who want to be able to mix and match products and technologies from each of the companies. And while Ballmer said he'd rather not have to compete against Cisco, he added that it was a market reality.

"Some people like to see things in black or white," he said. "We're either partners or competitors. But the relationship is much more complex. It's what our customers want. And we have to work together in a sophisticated fashion to give customers what they want."

Indeed the notion of "co-opetition", or competing and co-operating, has existed for years. In the enterprise software market, companies such as Oracle and SAP have partnered as well as competed against one another. The result has been tremendous growth, but striking the balance between partner and competitor hasn't always been easy. And in many instances partnerships have turned sour, erupting into lawsuits.

But Chambers said that keeping customers as the focus of the relationship between his company and Ballmer's is the best way to ensure success. And he said that, in his opinion, this has not always been the case with previous big partnerships. He believes that if Cisco and Microsoft can give customers what they want, by allowing them to pick and choose overlapping and competing products from either Cisco or Microsoft, the entire market will benefit.

"If you do what is right for the customer, the whole industry will grow," he said. "Even though we might each have a smaller share in the market, there will still be a much bigger pie for everyone. And we'll all make a lot more money."

Over the years, Cisco and Microsoft have each risen to dominance in their respective areas. Cisco has been crowned the king of the IP networking market, garnering more than 80 percent market share in the IP routing and switching equipment category, the plumbing that connects corporate networks and the internet. And Microsoft has long dominated the desktop and operating software market with its suite of Office products.

Even though the companies have been solving different IT needs, they essentially share the same customer base. And because of this, they've had a loose partnership for nearly a decade.

Creating customer confusion
However, as Cisco and Microsoft each began expanding into other markets, they found themselves stepping on each other's toes. What resulted was confusion among their customers who felt they were being forced to choose solutions either from their networking vendor Cisco or their software supplier Microsoft. And because they were being pitched solutions from each company's sales team, they were confused about where the products complimented each other and where they competed.

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"Our customers just want to understand when we're going to work together and when we're going to compete," Chambers said. "And they don't want to be put in a no-win situation where they have to choose one or the other."

During the past seven months, the companies intensified efforts to work together. And on Monday they officially announced that they have committed to collaborating in seven areas, including security, mobile computing, information technology architecture and unified communications.

Within these areas the companies will dedicate engineering efforts to make sure products interoperate. And they'll work with their sales and marketing teams to better educate customers about how the Cisco and Microsoft solutions can work together. And the executives themselves will work more closely together to better articulate that vision to customers.

"The one commodity I get to allocate personally is my time," Ballmer said. "We have partners that I meet with regularly like HP, Intel and Dell. And even though John [Chambers] and I have always had a good relationship, we haven't committed to regular meetings. And that's what we're going to be doing."

The companies have already seen some success with this new strategy in the security market. About three years ago, Cisco and Microsoft introduced…