May 13, 2011, Silicon Valley, California- By now you’ve probably heard that Microsoft is buying Skype (pending regulatory approval). This is Microsoft’s biggest acquisition to date at $8.5 billion, and Skype’s second acquisition (it’s already been bought and sold by eBay). Since Skype’s release from eBay, it has been quite busy adding features and functionality, and even making some acquisitions of its own, such as that of live streaming video service Qik.
Some analyst says it is just to beat Google the giant web search engine with thousands of free features, by adding multiple services to its platform which Microsoft had tried for several times in the past as well.
Skype has a reported 663 million registered users and 145 million average connected users. The company recently announced a record of 30 million users online at the same time.
The deal has enormous implications, not only for Microsoft’s own offerings, but for the industry at large. There are also plenty of concerns. Let’s get to those first.
Clearly, Skype has a big user base, and users have the right to be worried about what is going to become of their beloved service in the hands of a giant like Microsoft. Especially considering Microsoft’s track record of acquisitions (laid out its graphic nature here).
Marshall Kirkpatrick at Read Write Web brings up some reasonable fears, such as product neglect and malware issues. “Will Skype in 14 years look like Hotmail does today?” he asks. “Malware is already an issue for Skype and of course it’s a well known part of the Microsoft landscape,” he also notes.
How will it affect use across various platforms? Microsoft says it will continue to invest in and support Skype clients on non-Microsoft platforms. Still, this is a little vague, and considering how much head butting goes on between Microsoft and Google, it wouldn’t be an enormous shock to see some issues raised in this area in the future.
On reassuring the continued support of other platforms, Steve Ballmer said at the press conference, “I said it and I mean it. We will continue to support non-Microsoft platforms.”
“We’re one of the companies that have a track record of doing this,” he added. Still, does that mean all platforms? The fact that this is such a huge acquisition for Microsoft, however, should be an indication that the company will take it very seriously, as it has so much invested in Skype’s future success. Mobile Skype, which has more users than Twitter, should help Microsoft on numerous strategic levels. Mobile would be a major one. Skype will support Windows Phone, of course, and while it remains to be seen what kinds of integrations we can expect, there’s little doubt that it will be an integral part of the Microsoft mobile strategy as it tries to gain ground against Google’s Android and Apple’s iOS. [wp_campaign_1] Also consider that Microsoft has recently made deals with Nokia and RIM that will see Microsoft services heavily integrated on these companies’ mobile devices. It stands to reason that Skype will play a major role here as well.
It doesn’t seem out of the realm of possibility that Microsoft would at some point create a Skype-branded phone.
The Living Room
The living room is one area where Microsoft already has a tremendous edge over competitors like Google and Apple. While the jury’s still out on the future success of Google TV and Apple TV, it’s been pretty well established that Microsoft’s Xbox line is a smashing success. Kinect is doing pretty well too. Guess what will be integrated with both of these.
In its announcement, Microsoft points out its “long-standing focus and investment in real-time communications across its various platforms” including Xbox Live. It also says Skype will support Xbox and Kinect, and will connect Skype users with Xbox Live (in addition to Lync, Outlook and other communities).
PayPal is also coming to Xbox Live. That can’t hurt either.
Let’s not forget about the implications for businesses. Microsoft says the acquisition will increase accessibility of real-time video and voice communications for enterprise users and generate “new business and revenue opportunities”.
Plenty of businesses are already using Skype. How many are using Microsoft products? This could be a huge blow to Google, who is aggressively going after the enterprise market with Google Apps, and soon with Chrome OS. Skype may give businesses another reason to stick with MS. Of course it remains to be seen what kinds of integrations we’ll see.
Competition and Google
There are plenty of areas where Microsoft and Google compete with one another, and Skype could go a long way in helping Microsoft with maybe all of them. That includes the areas we’ve already discussed – mobile, the living room, and the enterprise. It also includes the communication services Skype provides on its own.
Google has been doing more and more in this area, whether it is in the form of Google Voice or video chat via Google Talk and Gmail (email being another prime example of where Google and Microsoft already compete). How about live streaming video? Skype recently bought Qik for this, and YouTube recently announced its own YouTube Live (both a viewing destination and a platform for streaming live video).
YouTube is also doing plenty of other things to cement its position of being THE online video destination. This week, the company announced new partnerships with movie studios, the doubling of its catalog of movie offerings (including new releases), and increased investments in original content from partners. This comes back to the living room discussion, but I’m guessing we will continue to see overlap in the offerings from these two companies here.
And then there’s Bing. What in the world could Skype possibly have to do with search? Well, everything we’ve talked about up until now is all about Microsoft expanding its presence and user base. The more people using Microsoft products (now including Skype), the more opportunities Microsoft has to push Bing on people. The more businesses using Microsoft products, the more opportunities for Bing integration. The more consumers using Microsoft in the living room (where Microsoft is already heavily pushing Bing via television commercials), the more opportunities for Microsoft to push Bing on users through products.
We’ve had the mobile conversation more than once – both when Microsoft announced its partnership with Nokia, and its partnership with RIM. They both equate to Bing search being the default search on more mobile devices, and getting Bing into more consumers’ hands (literally). These things can only help Bing’s continued growth.
Last week, we asked, “Will Bing catch Google?“. The Skype acquisition can’t hurt. Much of this is simply about opportunity. We don’t know all of the details about Microsoft’s plans for Skype, but there’s no question that there is an incredible amount of possibilities that can help give the company some much-needed boosts.
Kirkpatrick brings up another good point about developer opportunities, making the case that “social graph and address books, presence, file sharing, Instant Messaging, [and] mobile” elements of Skype are all things developers salivate over, and that with Microsoft behind it, developers could get a great deal more access to build more useful applications and integrations on top of Skype.
The social element was played up in the press conference about the acquisition.
The Facebook Factor
As long as we’re talking about how much of a strategic buy this could turn out to be for Microsoft, in its ongoing competition with Google, let’s not leave out the implications for Facebook – another company that not only has a partnership with Microsoft, but increasingly competes with Google in numerous areas.
Om Malik brings up some good points about how the acquisition relates to Google’s competition with Facebook, which he says could be the biggest winner of the deal.
“The Palo Alto-based social networking giant had little or no chance of buying Skype. Had it been public, it would have been a different story. With Microsoft, it gets the best of both worlds — it gets access to Skype assets (Microsoft is an investor in Facebook) and it gets to keep Skype away from Google,” he says. “Facebook needs Skype badly. Among other things, it needs to use Skype’s peer-to-peer network to offer video and voice services to the users of Facebook Chat. If the company had to use conventional methods and offer voice and video service to its 600 million plus customers, the cost and overhead of operating the infrastructure would be prohibitive.”
“Facebook can also help Skype get more customers for its Skype Out service, and it can have folks use Facebook Credits to pay for Skype minutes,” he adds. “Skype and Facebook are working on a joint announcement and you can expect it shortly.”
Also, while Google continues to struggle in social, Skype makes Microsoft more social by default, with or without Facebook (MUCH more so with any Facebook integration).
The New York Times says Microsoft analysts see the acquisition as a move to block Google from “gaining greater ground in Internet communications”. Google was said to have been in talks with Skype about a potential partnership. It may or may not be the entire basis for the acquisition, but it’s not hard to see this logic.
To put it simply, it’s all about products that people use, and Microsoft just added another major one to its list.
Google is just kicking off its Google I/O developer event. It will be interesting to see what all news comes out of this, and how it might pertain to this discussion. Also keep in mind the angling regulatory scrutiny over competition that Google continues to attract.
Do you think the acquisition will be good for Microsoft? Good for Skype? Tell us what you think.