22
FEB 2012

Posted by Nicole at 04:30 PM EST

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Cisco Appeals Microsoft’s Skype Take-Over: Is This Really Necessary?

Back in May, Leo and I commented on Microsoft’s Skype purchase for $8.5 Billion. In summary, we speculated that this was a defensive move for Microsoft to stay competitive with Google and Apple in two industries: mobile and business communication applications. Funny - We didn’t consider what another, large player in the world of business telepresence might think of this acquisition: Cisco. Perhaps this is because Skype, the free application that we’ve been using to call our distant relatives, doesn’t conjure up images of multi-thousand dollar telepresence equipment, routers, and networking software. Apparently, though, Skype has been on Cisco’s mind as Cisco recently appealed to the European Union to intervene in this merger.

“Cisco does not oppose the merger, but believes the European Commission should have placed conditions that would ensure greater standards-based interoperability,” said Marthin De Beer, Cisco SVP, Emerging Business Group, in this Cisco blog on February 15th. “...This appeal is about one thing only: securing standards-based interoperability in the video calling space. Our goal is to make video calling as easy and seamless as email is today.”

De Beer’s blog is very consumer-centric, pointing out that proprietary protocols place the burden of interoperability on consumers. However, I’ve read a few opposing articles that paint Cisco as the jealous-type who never got the girl. Rob Enderle of ITBusiness Edge thinks that Cisco is simply worried that Skype will kill high Cisco margins. His message to Cisco was so colorful that I had to include some here:

“This is kind of like waiting until the bride and groom are back from their honeymoon to object to a marriage. Chances are that it won’t undo what was done and all you’ll do is piss off both parties and a whole mess of in-laws. While it might make a foundation for a wacky romantic comedy, it doesn’t make for good business and given the focus on Cisco’s executive team of late, you’d think looking like idiots would be low on its priority list.” ( See Elderle's full blog here)

Similarly, Robert Mullins of InformationWeek cites the argument that Cisco’s appeal to the EU over interoperability is a case of the pot calling the kettle black (See Mullins' blog). This made me pause. Is Cisco a big proponent of interoperability? I remember writing a blog in 2010 about Cisco’s Umi, wherein I mentioned this video-calling product for homes didn’t support SIP standards. Hmm. I asked one of our NOC Technicians, Dave Jodhan to weigh in:

“[Cisco does] support open standards, but generally try to ‘one up’ them. EIGRP, Cisco's proprietary IGRP, unquestionably a better protocol than OSPF or IGRP, but proprietary to Cisco,” said Dave. He also went on to cite SCCP, a signaling protocol that’s proprietary to Cisco.

After a little digging, I found this complaint noting that Cisco(R) FabricPath, a network engineering technology, wasn’t fully standards-compliant. I also found this commentary on Cisco’s recently rumored choice not to use a standard, open protocol for a software-defined networking (SDN) technology.

What’s This Really About?

That dive took me into network engineering land, where I’m a foreigner, but it was enough to know that people haven’t historically seen Cisco as the biggest supporter of technology via open standards. So, it seems obvious that Cisco's appeal to the EU isn’t a pure crusade for interoperability and standard protocols. The following suggests it’s the coupling of Microsoft Lync and Skype that scares Cisco:

“Microsoft’s plans to integrate Skype exclusively with its Lync Enterprise Communications Platform could lock-in businesses who want to reach Skype’s 700 million account holders to a Microsoft-only platform,” said De Beers in his blog. Critics are anchoring on this line, pointing out that it’s really this Skype-Lync coupling that intimidates Cisco. But let’s examine that a bit further...

Microsoft Lync is a unified communications platform for large businesses. This 2011 Forrester study details the benefits and Return on Investment of Microsoft Lync Server a composite case study of 12 customers; the Microsoft customers ranged from 2,000 to 70,000 employees. The total cost of Lync server includes the capital expenditure on qualified devices, Lync software licensing and a licensing fee per device, installation and maintenance fees required by a Lync specialist, plus the cost of hosting Lync. This doesn’t include the cost of PSTN usage.

Meanwhile, Skype is “hybrid peer-to-peer and client–server system, and makes use of background processing on computers running Skype software” (Wikepedia). The majority of Skype calls are free Skype-Skype calls, which was reportedly 700M minutes daily in 2011, almost half of which were video calls.

Now, the use case outlined by Cisco here is: Skype user video calls corporation running on Lync... Or in other words, Grandma video calls her insurance company regarding a claim. Or, my friend Susan video calls a big online clothing company to exchange a shirt. Is this what Cisco envisions as right around the corner? Should this be the assumption, Microsoft stands to make money if large businesses choose phone systems based on their ability to Skype with customers through that system.

While, admittedly, the Jetsons-like experience of video-calling companies is neat and maybe even foreseeable, I see an immediate concern with the Skype-Lync pairing discussed above. As mentioned, Skype is a P2P service, having implicit security issues, despite its encrypting each user session (e.g. chewing up uncontrollable amounts of bandwidth, third party call interception, call initiation monitoring by third parties...) Would a large company choose to communicate with customers about transactions, personal data, etc, via such an insecure platform?

While Skype’s not a good fit for large company-customer communication, Lync is too expensive for small businesses. Additionally, I would argue the market demand for video calling between company and customer is equal, if not higher, for smaller businesses. Personally, I’d like to consult with medical professionals, lawyers, realtors, accountants, florists, veterinarians, interior designer, and more via a video call. However, these businesses aren’t corporations ready to shell out thousands for a Lync deployment. Think small businesses are a small matter? About 50% of people in the U.S. are employed by businesses with <500 employees (U.S. Census Bureau 2008).

So, what’s needed here? Answer: Affordable unified communications equipment and services for consumers and companies ranging from small to large.

Enter SIP. The demand for unified communications from company to customer is growing, but the actual market need will drive the prices for UC solutions down to services built on the best, interoperable, and cost-effective technologies out there. Like email turned to one protocol, on which successful services are built, so will voice and video. That’s not to say Microsoft’s purchasing a user base of 700 million is useless (no way!). I do predict, however, that Microsoft will need to re-platform and open up Skype’s walled garden to adapt to the needs of business users - simply to meet consumer demand. After all, keepers of perhaps the the most infamous walled garden, AOL, claims to have had 30 million users at its peak, at a time when the number of Internet users were less than 20% what they are today.

In conclusion, although I 100% agree with Cisco’s sentiment, promoting interoperability and open standards, I don’t think government intervention will be necessary to help consumers. Consumers will help themselves and make their decisions based on need and cost. Did I mention a SIP call is free?