Cisco Systems is becoming a Windows Server reseller, marking the first time the networking company is including a usable version of Microsoft's operating system in its equipment, Microsoft and Cisco announced Tuesday.

Six months ago, Microsoft CEO Steve Ballmer and Cisco CEO John Chambers held a joint press conference to showcase their growing relationship with a few demos of Cisco-Microsoft interoperability. Now, they've taken that relationship to the next level with a joint branch office product.

Later this year, Cisco will begin including a bare-bones installation of Windows Server 2008 in its Wide Area Application Services appliances, which do WAN optimization and application acceleration. The initial appliances will add local print, directory, and domain services to Cisco's own capabilities via Server Core, a new trimmed down command-line Windows Server installation option.

Though Cisco includes elements of embedded versions of Windows in other products, this represents the first time companies will get explicit Windows services as a feature of a Cisco appliance. Potentially, this is an indication that Server Core represents an opportunity for Windows Server to show up in other places where it wouldn't have before.

The new product, which doesn't yet have a name or price, aims to simplify the challenging task of managing branch IT infrastructure in remote offices, where IT staff is often shorthanded despite a growing number of devices and technologies. Microsoft's internal research has found that 20% of corporate servers are at branch offices and 33% of corporate IT budgets is spent there.

"What we've been hearing is that customers are really looking for flexibility in terms of the remote or branch IT architecture," Baruch Deutsch, director of product marketing for Cisco WAN optimization, said in an interview. Deutsch said he's seen almost universally positive reaction from customers over the past several months as Cisco's been selectively demonstrating the technology.

That said, Cisco isn't the first to include services typically reserved for operating systems with its devices. For example, Riverbed Technology launched a line of WAN optimization appliances that also run DNS/DHCP and security software and can serve video. "We've been talking about branch in a box for a long time, and this is the next phase of that," Yankee Group senior VP Zeus Kerravala said in an interview. "Frankly, I'm surprised it took Cisco that long."