Steve Ballmer of Microsoft and Cisco CEO John Chambers appeared together in a rare face-to-face meeting to discuss the collaboration between Microsoft and Cisco.

The two companies have begun to encroach on each other's territory in the areas of unified communications and network security infrastructure, as well as products for the digital home, they agreed at a public event in New York.

A combination of collaboration and competition was the order of the day, as the two companies identified areas where they have refocused their efforts on working together to promote the vision both companies have of the convergence of voice, data, video and other forms of media over IP networks.

Cisco and Microsoft have been partners for 10 years, but that alliance has become tighter in the last seven months, with the two CEOs regularly checking in with each other to discuss progress and ways to collaborate. This new spirit of friendliness was not by the companies' choice but because customers demand it, both executives said.

Microsoft and Cisco had identified seven broad areas of collaboration and engineers are working together to ensure the products each company has in those areas will work together. Those areas of collaboration are: IT architecture, security, management, wireless and mobile computing, unified communications, connected entertainment and the needs of small and medium-size businesses.

"Companies don't want the issue of competition to cause them to interoperate ineffectively," said Chambers. Following a formal interview with TV veteran Charlie Rose, engineering leaders from Microsoft and Cisco demonstrated examples of technology interoperability that has resulted from the collaboration.

Microsoft's senior vice president Bob Muglia and Cisco's executive vice president and chief development officer Charlie Giancarlo demonstrated integration between a device running Microsoft's Windows Mobile 6 and Cisco's Unified Personal Communicator (UPC) unified messaging interface, the latter a direct competitor to Microsoft's Office Communicator product. Like Office Communicator, UPC is an enterprise instant-messaging interface that combines Web presence, chat, VOIP (voice over IP) and video-conferencing functionality.

Another demo by Muglia showed how a next-generation Linksys wireless set-top box from Cisco could communicate with a Windows Media Center PC to show photos on a high-definition display without the PC having to be in the room near the display screen.

Ballmer also faced down speculation that Microsoft and Yahoo were talking about a possible deal earlier this year, speculation that was quieted by Microsoft's announcement it would buy digital media and marketing services firm aQuantive in May in a $6 billion deal to boost its online advertising strategy. The deal, Microsoft's biggest to date, closed last week, and the possibility of the company purchasing Yahoo seemed a moot point.

In an interview following his joint public appearance with Chambers, Ballmer said Microsoft has no plans to do another massive deal like the aQuantive one to build out its advertising strategy. Instead, the company will focus on a combination of making smaller acquisitions and building new infrastructure where it is necessary to help Microsoft compete with Google.

"We're going to buy more stuff and build more stuff ... but we don't have a major conquest [in the works]," he said. "Sometimes we'll have to decide what's better - to buy or to build," said Ballmer.

Original reporting by Elizabeth Montalbano, IDG News Service.