Is Skype Microsoft's Ace in the Hole?

Convergence Corner

Is Skype Microsoft's Ace in the Hole?

By Erik Linask, Group Editorial Director  |  June 01, 2011

At $8.5 billion, Microsoft overpaid for Skype (News - Alert). That’s the initial reaction of much of the industry and, when all is said and done, that may turn out to be true. But, there are too many compelling opportunities for Microsoft (News - Alert) to not have made the move.

In the days leading up to the deal, many were speculating that Facebook and Google were in a bidding war for Skype. While neither has Microsoft’s presence in the enterprise space, adding an established communications capability and an enormous global user base would have given either a significant advantage in the consumer communications space.

Yes, eBay tried, but its business isn’t nearly as conducive to integrating voice and video capabilities as Facebook (News - Alert). Half a billion users are already using Facebook, more than half of them on a daily basis, to engage their friends, colleagues, and family members. Integrating Skype features would be a no-brainer and would effectively ensure Facebook’s dominance in the social communications market. Add to that the fact that countless businesses are creating Facebook storefronts – again, because that’s where their customers are – FaceSkype suddenly adds a business focus as well.

Speaking of business focus, you’ll recall Microsoft’s OCS launch, which was supposed to be the next great thing in enterprise communications and the PBX (News - Alert) killer. That didn’t play out quite as Bill Gates had planned. Lync, however, is a much improved UC platform and, with the integration of Skype, Microsoft instantly has a full-blown communications platform that doesn’t require a third-party PBX.

That’s not going to be a market changer as long as call quality on Skype isn’t business-grade, but with the hardware that already exists to connect Skype to corporate communications systems, Microsoft has put PBX vendors on notice. What would happen if it builds or, more likely, buys the network infrastructure that will allow it to deliver enterprise-quality voice via Skype? The thought brings new life to the “Death of the PBX” messaging from 2007.

The whole concept behind OCS, if you think back to 2007, was about removing the barriers of distance, network, and device from the communications equation. Having already struck an alliance with Nokia (News - Alert), Microsoft now has the chance to make that a reality by building tight integration between Lync, Skype, and Window Mobile 7 handsets. The combination presents a compelling UC case. It also presents a mobile video chat competitor to Facetime. One also has to wonder how Microsoft will approach the availability of Skye on other mobile platforms.

But, the most immediate impact will be in gaming. Micrsosft’s Xbox already leads the market over Sony’s Playstation3 and Nintendo’s Wii, and the integration of Skype into its platform will combine two popular products that in all likelihood have a significant common user base already, creating an easy sell. Combined with the Kinect platform, Microsoft will deliver an even more immersive gaming platform, which Sony will find difficult to emulate. Add to that the mobile integration that already exists with Windows Mobile 7, and Microsoft will have delivered a unified gaming experience.

Despite all its potential benefits, none of this is quite as exciting as the idea of Skype-enabled Facebook, but it brings Microsoft significantly closer to being the UC behemoth it has sought to become. It’s also the very reason Microsoft almost had to buy Skype – it could mean the difference between winning the consumer and enterprise communications markets, or losing both.

It’s a significant investment, and one that isn’t guaranteed to pay dividends. The pieces are in place, however, for Microsoft to build onto its empire. Of all the questions that remain, though, one stands out: Will it be able to monetize Skype, and does it matter? If Skype integration with its mobile platform, Lync, and gaming system delivers unquestioned dominance in these three markets, Skype’s value as an add-on will make $8.5 billion look like a bargain.

If Skype integration with its mobile platform, Lync, and gaming system delivers unquestioned dominance in these three markets, Skype’s value as an add-on will make $8.5 billion look like a bargain.

Erik Linask is Group Editorial Director of TMC, which brings news and compelling feature articles, podcasts, and videos to 2,000,000 visitors each month. To see more of his articles, please visit his columnist page.

Edited by Jennifer Russell