Cisco, Microsoft says competing products to mesh

While Cisco and Microsoft are undisputed leaders in their respective fields of network equipment and software, they are competing aggressively to deliver a single, "unified communications" system that ties together e-mail, phones and other tools over Internet networks.

In their first joint public discussion, Cisco Chief Executive John Chambers and Microsoft Chief Executive Steve Ballmer said they would compete in some areas but also meet demands from customers who want to pick and choose from both.

"They're saying, 'Give me the choice. Don't give me the all or nothing choice,'" Ballmer said, adding that he was seeking "respectful competition" with Cisco.

"There are plenty of competitors that you just don't talk to, or things get acrimonious," he said. "That's not where we want to go with Cisco."

Chambers said he and Ballmer would visit customers together later in the day, and that the they would try to clarify how the two companies compete and work together at the same time.

"Even where we're going to compete, what the customer wants to know is, 'Tell me how to interoperate. Don't make me throw away one relationship because of the other,'" Chambers said.

The comments come as both companies launch new products and form alliances that point to a growing rivalry.

Microsoft and network equipment maker Nortel Networks, a Cisco competitor, announced a broad alliance in unified communications last year.

Cisco, in the meantime, has been expanding its alliance with IBM.

Both companies are also seen trying to bolster their unified communications offerings through recent acquisitions.

Microsoft has bought Tellme Networks, a privately held speech technology company. The move was announced a day before Cisco said it will buy online video conferencing company WebEx Communications.

More recently, Cisco -- along with IBM -- bought a stake in software maker VMware just before it went public.

VMware's software programs can create, run and manage multiple "virtual" machines on a single computer, allowing businesses to spend less on hardware and other costs. Analysts have said it was set to compete with Microsoft.

Ballmer said Microsoft's relationship with Cisco was likely to evolve in coming years, although the size of the overlap should remain relatively small.

"John's gonna wake up one morning and say he wants to do something that overlaps with us, and that's his prerogative," he said.

The public discussion also comes amid concerns that recently volatile financial markets and tighter credit could discourage companies from investing in technology.

Chambers said both Cisco and Microsoft depend on corporate spending, but that the industry appeared "very strong on a global basis."

Ballmer agreed, and added that corporate budgets don't get cut as quickly as moves in financial markets.

(Additional reporting by Daisuke Wakabayashi)

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