Microsoft and Skype

On the 10^th of May it was announced that Microsoft had agreed a deal to acquire Skype for US$8.5 billion. Since then there has been much industry chatter about ‘why’ and ‘what’ this means for the industry. For me the only question mark is over how much they paid.

Microsoft has been moving into telephony for a number of years now. It was a natural progression for its business offering to include telephony, voice and video, in the evolution of work-based collaboration and in fact voice and video have been available as part of MSN Messenger for many years. This highlights an area of synergy between Microsoft and Skype; Microsoft, with MSN Messenger, allowed people to communicate over the Internet for free, exactly the area of the market that has proved to be so successful for Skype.

So, why Skype? Well, Skype is the world’s only truly global telephony service provider. It can offer it’s users connectivity to the PSTN, allowing calls to any phone/mobile phone in the world whilst offering the new generation services such as instant messaging, presence and video calls, to its on-net customers. When you start to look at the services Skype can offer it’s customers  - yes some are free, but many do have a cost associated with them  - then you start to appreciate how Microsoft can exploit this with it’s own products and not just for the home user but for business as well.

Microsoft could utilise the Skype network to offer inter-company communications beyond the enterprise boundaries, not only reducing call costs compared to the PSTN but also making services such as voice and video conferencing easily available.  The fact is that there are a number of services or applications that could be offered as part of a business service, whether that is to the business user in general or as part of an overall Microsoft solution based around its Lync products.

I know that there will be many out there who will put forward the lack of quality of service as an issue, but experience seems to show that this isn’t really a problem and that call quality is acceptable. In fact compared to calls on mobile phones the quality is actually quite good. Speaking of mobile communications, there is of course the tie up between Microsoft and Nokia to consider and how Skype services could be used in applications for both the home and business user. Mobile communications have become so ubiquitous in our lives that the old fashioned ‘land line’ is in danger of becoming obsolete (more of this another time) and that this may go some way to explain why voice quality is far less of an issue; we’ve just got used to ‘terrible’ calls.

Strategically this a very good move by Microsoft and one that could make them the major player in the telecoms market in the near future. The market itself could be on the cusp of major changes; not so much in the services we use, but in the way those services are provided. As I said at the beginning the only issue, well 8.5 billion issues, is the amount that was paid and how long it’s going to take to get a return on that investment. My guess is that Microsoft is in this for the long haul.

Andy Dakin

June 2011