Leo: Alright, TechCrunch and pretty much every tech rag on the web tells me this is a big deal so I guess we have to talk about it. Just kidding. Microsoft buying out Skype is huge, not only for Microsoft and Skype, but also for the rest of the Voice over IP community. Any preliminary thoughts before we get into it, Nicole?
Nicole: Oh geez, are we really doing this chat format?
Leo: Ha.
Leo: Microsoft paid $8.5 billion dollars for Skype, over 3 times the $2.75 billion eBay sold it for a year and a half ago. Of course eBay kept 30 % ownership so there are differences, but still, that’s quite a lump of CASH.
Nicole: And eBay worked out so well. Actually, in seriousness, it’s not hard to see why Microsoft would make this move. With Apple and Google crushing the mobile space, Apple pushing VoIP application FaceTime as a sell point, and Google starting to hone in on VoIP (see prior blogs on Google SIP Address discovery and native SIP support), it’s clear Microsoft has been left behind in the consumer mobile and VoIP world. According to this world-wide market assessment by Canalys in January 2011, Google mobile phones had 32.9% of the market, Apple mobile 16.0%, and Windows Mobile 3.1% [source]
Leo: Sure, Google’s 8.7% market share in 2009 skyrocketing to 30% + in 2010 might have raised a few eyebrows at Microsoft HQ. But how specifically is buying Skype supposed to sell more Microsoft smart phones ? I don’t see the connection...
Nicole: Well... as stated by ABI Research Senior Analyst Aapo Markkanen in eWeek,
“A preinstalled, well-integrated Skype client could be a potent differentiator for Windows Phone devices vs. Androids, iPhone and BlackBerry.”
Also, when you think from a defensive angle, because Google has rolled out with native SIP support in their Android OS, it’s conceivable that one day, Google apps and mobile users will be making SIP-SIP calls with friends and coworkers, bypassing mobile calling plans entirely. To that end, a well-integrated, native Skype client could be a big competitor; millions of Skype users just might think about that in their mobile phone buying process. [For at least the time being, until Skype people wake up and decide they want to use an open protocol to talk to whomever they please... SIP 4Life!!]
Leo: Let’s go back to talking about the deal. There was a lot of speculation that Google was in the market for Skype as well, and that they had offered up a bid of ~ $ 4 billion, but I’m not sure how true that is. Ballmer stated yesterday that what they were really bidding against was the Skype IPO, but did Microsoft know that Google was not serious about making a deal going in? Maybe, maybe not.
Nicole: I don’t really know, but NetworkWorld recently quoted Rob Enderle, principal analyst of the Enderle Group, saying,
“This is as much a ‘deny’ as an ‘acquire... Microsoft does not want Google to get core capabilities.”
I tend to agree, simply because the platform Google would have if they ever acquired Skype would be mammoth. Google has already been stepping on Microsoft’s toes when it comes to a business emailing and calendar platform - In this Google Apps page, Google blatantly states the cost and time-saving benefits for GMail for Business over Microsoft Outlook. A similar situation could be reached if Google acquired Skype for Business, combined with their recent SIP development, and pitched it up against Microsoft Lync.
Leo: It’s not like Google doesn’t already have core capabilities. I hate to break it to Microsoft, but video chat, IM and free on-network calling isn’t exactly unique. Gmail has it built into the browser, VoIP providers like us offer video chat, IM and on-network calling as well PLUS we’re using open standards. Basically, there’s nothing in Skype that couldn’t have been built for much less than $ 8.5 billion dollars.
The other ‘it’s worth it’ argument is the Skype user base numbering in the hundreds of millions. What do you think of that?
Nicole: Yes, now that you say it, ‘core capabilities’ isn’t the right term, per say. When we take a look at the actual Skype platform (P2P networking), I have to wonder if this is a direction Microsoft will want to keep or change, considering Microsoft’s no stranger to true SIP-SIP calling. So yes, I would have to say it’s the hundreds of millions of users on Skype, and the perception/understanding those users have of VoIP via Skype.
My Grandmother knows the phrase “Skype me,” but probably would have some confusion if I said “let’s have a VoIP call.” Not to mention anything related to “SIP.” The perception and understanding of VoIP that Skype has built is a huge feat, worth a large price tag. I’m not sure that price tag is $ 8.5 billion dollars...
Leo: I think the answer to the answer of ‘Why now?’ is easy. Try and name one Microsoft Internet service that’s has gotten widespread [good] buzz …
Nicole: The last widespread buzz that I noticed was the Internet Explorer 6 Countdown, a website Microsoft created to encourage people to stop using IE6. Brilliant marketing, but also made me think there should be a site for IE7, IE8, IE9...
Leo: Exactly. There hasn’t been an online Microsoft service that’s well regarded in recent memory. Even though hotmail is still the most widely used free e-mail service, it’s a lot like IE6, 7, 8. It’s not exciting.. nobody is clamoring over Hotmail updates. I suppose you could say that the Bing commercials are fun, but Google still dominates and Microsoft knows this.
Microsoft has a ton of cash to spend to get the type of buzz that they want, and I think that’s partially what happened here.
Leo: The better question is, what ISN’T Microsoft planning on doing with this? They’re already talking about having Skype in the Windows Phone, Xbox Live and Kinect, Outlook, Lync, Messenger and Hotmail... what else is left? Synergy, synergy, synergy!
Nicole: Right. It’ll be interesting to see if they first attack consumer products or business. My guess is consumer, simply because Skype for Business is still young, not widely used, and very much lacking [Note: I’m also somewhat biased...] I have heard the Windows Phone is the first target, considering Skype is already on Droids and iPhones. My next guess would be Messenger and Hotmail - because they could use some CPR. Even though you say Hotmail is still the leading email service (what?? why??), I hear the GMail/GChat user base is increasing rapidly.
Leo: I would probably say they’ll immediately go after consumers as well. I wonder what they’re going to offer on Windows phone that isn’t already on Android and iPhones, and whether or not that new offering is convincing enough to convert people. They did make the promise that Skype on other platforms will still be supported so I wonder how unique Skype on Windows phone will be.
I also found this:
“Buckingham quipped that given Microsoft’s large Xbox Live community perhaps users could now use Skype’s video conferencing to see who they were actually killing when playing games like Call Of Duty 4: Modern Warfare.” [src]
Who’s Buckingham? The editor of The Prudent Speculator newsletter and Chief Investment Officer of Al Frank Asset Management - a guy who has held MSFT in his value oriented portfolios for several years. Clearly, he's also someone who has never played COD (We’re on Black Ops now by the way) on Xbox Live and who has no idea how the community works. I may just be speaking for myself here, but seeing game opponents face-to-face is the last thing that I want or need.
Nicole: OK OK, Leo. You really pwned that point. We all know you are the resident gamer of Junction Networks. Moving on...
Leo: Haha. All I’m getting at is that I don’t think gamers on Xbox Live will be very receptive to a Skype app or a Skype plugin, but the community may prove me wrong.
There’s also the idea that the addition of Skype could turn every Xbox and Kinect into a home video conferencing system. It’s an interesting idea that we’ve already seen demonstrated with Microsoft Lync.
Which brings me back to ‘Why Skype?’
Now I know I’m a bit biased here but anything Skype can do SIP can do better, am I right? Don’t you think it’s a bit strange that Microsoft would promote Lync, talk up their ‘standards-based’ solution and how Lync will integrate with other MS prodcuts i.e Outlook, Kinect, etc and THEN buy Skype, which will do pretty much the exact same thing except with proprietary tech? Seems like a little back tracking on the open approach, though I suppose Microsoft has never really been known for being open.
Nicole: Who knows. Like I said, I do envision an imminent world of Skype users with Skype apps on their Microsoft Windows phones, making free calls to everyone in the Skype network. Then there will be GChat/GMail users with their Android phones doing the same. In the long run, the open platform will win out as history repeats itself. So, Microsoft seems to have made a bold, short term move for a huge user base and media attention. What they’ll do with it from there, I don’t know. In the meantime, I’ll use my getonsip.com account for free calls to savvy SIP users. [Shameless plug!]
Leo: You and me both. Maybe the plan is SIP for businesses and Skype for consumers? We’ll just have to wait and see.