[This appeared in the gdgt weekly newsletter. You can subscribe to it here: gdgt.com/newsletter/ ]
1. I have to confess that I had an inkling something was up when I suggested that Microsoft buy Skype in the newsletter a couple of weeks ago. I'd been hearing from some of my sources that the two companies were talking, I just didn't think it'd happen quite so quickly -- or even at all given the interest Skype was also getting from Google and Facebook (and probably some other names that haven't emerged).
2. Microsoft probably overpaid -- but it's too early to tell. $8.5 billion comes out to about $50 per active user (they claim about 170 million "connected users"). That's a lot of value to have to try and extract given that most Skype users don't pay anything at all to use the service. Even so, the strategic value in owning Skype is considerable and not to be underestimated. It's just going to be a challenge to justify the price that was paid unless they're really aggressive in -- and especially successful at -- leveraging both the technology and the social network to create new revenue opportunities. There are the obvious things they can do to integrate, but, given that we're just at the cusp of this big transition to IP-based communication, it's hard to tell just how large those other opportunities could be and, as a result, it'll be a long time before we can tell whether Microsoft spent too much.
3. This is good for Facebook. It was hard to imagine a pre-IPO Facebook doing such a large deal anyway, and now given, Microsoft's investment and partnership, it seems likely that they'll be able to piggyback on the purchase and get the kind of deeper integration with Skype they were looking for. Plus now they don't have to worry about Google snapping Skype up and using it to build some sort of competitive social offering.
4. This is great for Windows Phone and Nokia. Microsoft will be able to layer Skype into its mobile OS in ways that weren't possible before, and I'm sure Nokia, which has always been partial to Skype (see what they did with Skype and the N900, for example), will be happy to market a phone that appeals to heavy Skype users.
5. Of course, the carriers are going to be wary. They already don't like Skype -- because, well, they don't like anything that might lead to them becoming simply dumb pipes -- but with Microsoft's weight (and buckets of cash) behind it, Skype might very well be able to make inroads here. It'll be interesting to see how much the carriers push back.
6. Microsoft bringing Skype to Xbox and Kinect is a no-brainer. They've done a good job turning the Xbox into more than just a gaming console, and adding Skype video calling to the mix only adds to its appeal. This probably would have happened anyway, but now it'll probably happen more quickly and the integration with Live will be better than it would have been otherwise.
7. It's harder to tell how this will impact Skype users more generally, but Microsoft says it's committed to keeping Skype on non-Microsoft OSes, and I honestly think they'd be crazy not to. (Want an easy way to impress everyone? Improve the horrible Mac client Skype released recently.) In fact, there's really no point to buying Skype if Microsoft isn't going to use it as an opportunity to evolve how it thinks about its products, and so, if anything, they should expand the number of products and platforms for which Skype is available. The opportunity here, at least as I see it, isn't just the access to Skype's userbase and technology, it's that it gives Microsoft a way to embrace the multiplatform world I described in that earlier newsletter. To put it another way: Microsoft needs to become more like Skype. Yes, bringing Skype to Outlook and the Xbox like that will be good, but the wider implication for Microsoft is in how Skype thinks of itself as a product, i.e. one that becomes more valuable the more devices and platforms it works on.
Discussion about
Seven thoughts on Microsoft buying Skype
I think this is an interesting topic purely from the consumer marketplace view. However, I would guess that in regards to this purchase, you can't separate Microsoft the consumer brand from Microsoft the corporate brand. I think few would argue that Microsoft is on the verge of becoming one of the real powerhouses of the corporate phone system market with their Microsoft Lync product (now offering the total array of unified communications services). I would think that they would leverage both sides of the house, taking some Skype technology to add to the Lync feature set, and taking years and massive technology development efforts put into Lync and now having a way to better port some of that technology over to the consumer space. While you can argue cases where Microsoft has not been able to move their technology between the two sides of the aisle (consumer and corporate), you can also argue cases where they have done this exceptionally well. Only time will tell what they do with Skype.
Great point addressing the missing point #8 What about Lync? Lync does Phone calls, IM, Screen sharing, email and Skype does Phone calls, IM, Screen Sharing and file transfer... Huge overlap.
We are just now implementing Lync and the functionality if fabulous, however it has the throughput performance of a sick dog. Skype know how to perform... Here's hoping they take the best from both.
We are just now implementing Lync and the functionality if fabulous, however it has the throughput performance of a sick dog. Skype know how to perform... Here's hoping they take the best from both.
Peter, you are correct there is overlap in the feature sets of Lync/Skype, but not much in the user base. Skype is more consumer/small office focused, while Lync is for medium to large enterprises. So if you want to make a serious dent in the UC space, you need both offerings.
Great points. Here's my own thoughts on your points:
In regards to #2, it definitely sounds like they paid too much up front. However, we will never know the answer to the question: how much would it have cost them to upgrade Live Messenger to do everything Skype does, to integrate that into their other products, and to get it pushed out to other platforms? Additionally, how many marketing dollars would it have cost them to get Skype's level of penetration into other platforms, especially in light of the competition it would have had from the incumbent? When you factor these in, I'm sure the cost is far less than the price we see on paper.
About #5, I can only point out that Microsoft's "buckets of cash" didn't help them win over much support from carriers in rolling out Windows Phone 7 updates in a timely fashion, so I wouldn't count on it holding any sway in convincing them to do something they perceive to hurt their bottom line.
#6 is the immediate point I thought of at the announcement... with one caveat. I hope it also supports the old Live Vision USB camera for those of us who have never upgraded to the Kinect. This would mean that I no longer have to consider Skype video chat support when piecing together my entertainment center setup, since it would be included with something that will have to be there anyway. If they require Kinect and reject the old USB cam, it will be the only feature so far, and in the foreseeable future, that will make me consider buying a Kinect. As expensive as it is, though, I will probably skip it and just stick to huddling around a laptop when we chat with family.
To add to your point #7, Microsoft is clearly trying to make online services into a larger slice of its profits, especially with Office heading towards an online service over time. They have to push these services to Apple and Google users as well if they want to stay relevant in a world increasingly dominated by iOS and Android. While Skype will probably never pay for itself on their budget sheet, it may be just the "halo effect" piece they need to make iOS and Android users bother to take their other offerings seriously. If they can take Skype and make it better, some of us might consider at least signing up for a trial version of whatever they offer next. If they fail at this, though, it could be disastrous to their chances of pushing those new services to non-entrenched business users.
So, I'd say that this will actually serve as a good barometer of Microsoft's future. If they do this right, the goodwill and marketing it will gain them could kickstart their chances in becoming a viable player in the online platforms and services arena. If they blow it, it could be the beginning of the end for those chances, and we may watch them pass slowly into a niche relevance like IBM.
Microsoft, if you are listening, the game is on the line and you've got the ball. Will you shoot to win, or will you just stand there and watch the clock run out?
In regards to #2, it definitely sounds like they paid too much up front. However, we will never know the answer to the question: how much would it have cost them to upgrade Live Messenger to do everything Skype does, to integrate that into their other products, and to get it pushed out to other platforms? Additionally, how many marketing dollars would it have cost them to get Skype's level of penetration into other platforms, especially in light of the competition it would have had from the incumbent? When you factor these in, I'm sure the cost is far less than the price we see on paper.
About #5, I can only point out that Microsoft's "buckets of cash" didn't help them win over much support from carriers in rolling out Windows Phone 7 updates in a timely fashion, so I wouldn't count on it holding any sway in convincing them to do something they perceive to hurt their bottom line.
#6 is the immediate point I thought of at the announcement... with one caveat. I hope it also supports the old Live Vision USB camera for those of us who have never upgraded to the Kinect. This would mean that I no longer have to consider Skype video chat support when piecing together my entertainment center setup, since it would be included with something that will have to be there anyway. If they require Kinect and reject the old USB cam, it will be the only feature so far, and in the foreseeable future, that will make me consider buying a Kinect. As expensive as it is, though, I will probably skip it and just stick to huddling around a laptop when we chat with family.
To add to your point #7, Microsoft is clearly trying to make online services into a larger slice of its profits, especially with Office heading towards an online service over time. They have to push these services to Apple and Google users as well if they want to stay relevant in a world increasingly dominated by iOS and Android. While Skype will probably never pay for itself on their budget sheet, it may be just the "halo effect" piece they need to make iOS and Android users bother to take their other offerings seriously. If they can take Skype and make it better, some of us might consider at least signing up for a trial version of whatever they offer next. If they fail at this, though, it could be disastrous to their chances of pushing those new services to non-entrenched business users.
So, I'd say that this will actually serve as a good barometer of Microsoft's future. If they do this right, the goodwill and marketing it will gain them could kickstart their chances in becoming a viable player in the online platforms and services arena. If they blow it, it could be the beginning of the end for those chances, and we may watch them pass slowly into a niche relevance like IBM.
Microsoft, if you are listening, the game is on the line and you've got the ball. Will you shoot to win, or will you just stand there and watch the clock run out?
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Is there an sballmer@hotmail.com subscribed to your newsletter? Sounds like he was impressed with your recommendation.
Yes, this cannot be stated emphatically enough... the UI for Skype 5, especially on the Mac is an absolute train wreck... with dead puppies scattered everywhere... and being eaten by maggots... while vultures fight over the remains... and death himself walks among the wreckage laughing madly. Is that clear enough of a metaphor? ;)
Yep - I still have the old version of Skype. It apparently is not vulnerable to the new security hole so I'm not eager to patch it right now. :)
One thing you didn't touch on directly is that Skype just acquired Qik. Obviously, this gives Microsoft a pretty decent foothold in the Android realm as well - or at least with us EVO users - to say nothing of the other supported platforms. I don't know, obviously, what Redmond is going to do with Qik, but as that is already a mobile platform with video (really Skype? no video for the masses?) they might be able to leverage that into some cross-platform money as well. Really, as long as they can make Qik on my phone talk, in real time by video, to Skype on a PC or Mac I'll be happy.
Re #7, support on other OSes: As far as Apple and Android are concerned, I'm willing to believe that Microsoft doesn't drop support. There are just too many users out there.
But when it comes to Linux, I'm much more skeptical. Desktop use is marginal, and if we ever see a Linux phone again, co-operation might not be as easy as with Skype - N900
But when it comes to Linux, I'm much more skeptical. Desktop use is marginal, and if we ever see a Linux phone again, co-operation might not be as easy as with Skype - N900
Peter, I think #3 is the underlying reason for the purchase. Skype made the most sense for Facebook, but they don't have the cash to buy them, so big brother picked it up for them. Facebook + Skype would pretty much eliminate the need for any other web based communications...if done right.
