Despite early suggestions that it was a blunder, Microsoft’s acquisition of Skype may be one of the best moves the company could have made, provided they don’t screw it up.
Microsoft’s stunning announcement that it was acquiring Skype for about $8.5 billion was initially derided by some as being a blunder. I suppose it might seem that way if you only look at Skype in its current form. But that’s not really relevant to Microsoft’s long-term plans.
Think about what you get when you integrate Skype with Microsoft’s existing platforms. Assuming that Microsoft continues to support the breadth of computer operating systems and mobile devices that Skype currently supports, you suddenly have a global, peer-to-peer communications network unlike any other. If Microsoft is able to integrate Skype with its full range of products from its video games to Microsoft Office, you suddenly have something that neither Apple nor Google can match.
The picture is something like this. Skype is integrated into Microsoft Lync, which is the new corporate messaging system that replaces Microsoft Communicator. This gives Lync the ability to do video chats, instant messaging and voice connections with over 100 million Skype users in addition to all of the Lync users out there. While Lync provides other capabilities such as desktop sharing and multiparty conferencing, along with PBX integration, the reach provided by Skype is something that nobody else can do.
Then think about the potential integration with Windows Live Messenger, and you suddenly expand Messenger’s reach to really vast numbers of people. And when you consider that most of those Skype Mobile users aren’t currently using Microsoft’s platform, then suddenly there’s an entrée into mobile communications that Microsoft couldn’t get any other way. While Skype will be integrated with Windows Phone 7, it’s already available on Android, iOS, BlackBerry and Symbian devices globally. The only real restriction is that some carriers don’t promote the use of Skype. On the other hand, some, such as Verizon Wireless, do.
Skype, meanwhile, gets something too. Skype users will find themselves able to connect to millions of people who were previously unavailable. Depending on how Microsoft decides to integrate Skype, those Skype users on Linux computers will find that they can have video chats with a much broader variety of Windows users. Now it’s only Windows users who download and install the Skype client. Soon it could be everyone.
But this sudden availability of a new global VOIP network will only be successful if Microsoft is careful about how it implements the process. First, the company has to fulfill CEO Steve Ballmer’s promise that the current support for a diverse set of platforms will remain. Skype can’t be a Microsoft-centric communications system if the company is going to realize the full range of capabilities.
Second, the basic level of Skype has to remain free and offer no less than the feature set it currently offers. Microsoft’s success with Skype depends on the numbers, and you only keep those numbers when you aren’t making people pay for the service. But Microsoft also needs to make the Skype premium service something worth paying for. Right now, it’s not compelling enough to be profitable. This means that Microsoft will have to improve the feature set and reliability while keeping pricing under control.
Improving the profit model for Skype may take some doing, but this is certainly within the company’s capabilities. Microsoft has already learned how to make money with free products such as Internet Explorer and Live Messenger. It can do the same thing with Skype. But Microsoft has to resist the temptation to turn basic Skype into a profit center by making users pay for it. Perhaps the company should think of Skype as being like over-the-air television in which the audience is really the product that has the value.
Fortunately, there are indications that Microsoft is intent on leaving Skype alone, at least in terms of it being a VOIP system. Skype will be a separate division; it’ll retain its offices in California and in Europe. The current management will stay in place. If Microsoft plays its cards right and is able to retain the current employee population, then Skype will be able to offer Microsoft something it couldn’t get any other way—a global communications medium that will give Microsoft’s customers much more access than they can get any other way.
Of course, Microsoft could screw this up. It could turn Skype into a Microsoft-centric product, slowly drop support for other platforms and charge more money. If it does this, and there are some who think it will, then the Skype acquisition will indeed be a blunder. But I think Microsoft has learned its lesson and instead sees Skype as the access to millions of mobile platforms and millions more users. If the company does this right, then $8.5 billion may not be the deal of the century, but it will be well worth the cost.