Despite their recent efforts at conciliation, Microsoft and Cisco continue to go head to head in defining what makes each “different” from the other in the unified communications market. For Cisco, it’s all about the network; for Microsoft, we’re moving telephony to IT. Cisco will tell you they support openness and integration, but when push comes to shove they spout the ultimate value in running Cisco applications on an all-Cisco network. For its part, Microsoft promises that its applications-based approach will save companies significant amounts (up to 50%, according to Jeff Raikes’ OCS launch speech) in voice management costs.

Now let’s be clear: Microsoft and Cisco each have good reason for betting on UC. For Microsoft, it’s the best way to ensure its current installed base of Office and Exchange users spends more money with the company—money beyond annual maintenance fees, money that actually goes toward new products and bi-annual upgrades as those products continue to mature. It’s also helping the vendor secure itself against upstarts like Google and Zoho, which are offering free or low-cost software to compete with and improve upon Microsoft’s productivity software in new and inventive ways. Cisco, meanwhile has indicated in a recent earnings statement that its future rests with emerging technologies—and big among those are unified communications applications (as well as telepresence, which presumably surprises no one). After all, one way for Cisco to grow revenues is to dominate new markets (not a new idea of course, as the telephony market knows).

Given the stakes, there’s no reason to expect Cisco and Microsoft to go all Kumbaya on us. But the fact is, their visions of UC are not mutually exclusive. Unified communications applications are just that—applications. The require back-end servers (unless they’re entirely Web based, which these CEP products are not), and those servers run on a data network. That’s how it works. (Theoretically, companies could develop appliance-based UC applications, but I’m not aware of any yet that go beyond IM or conferencing.) The real issue is where you put the intelligence, for purposes of management, performance and control: in the network (as Cisco prefers) or at the software endpoints (the Microsoft model). That’s worth debating, but it’s hardly significant enough to define the entire market.

So why do it? Well, when I asked Microsoft’s Michael Croan who the company sees as it’s biggest competitor in the UC market, the answer wasn’t IBM. It was Cisco. Likewise, Cisco’s Andy Leong told me the company’s biggest UC threat will come from IBM and Microsoft, not Avaya et. al. And that, of course, defines the differentiation debate.