Tuesday, May 10, 2011

Confirmed: Microsoft buying Skype

Some early reports have Microsoft aquiring Skype for $8.5 billion.

If true, this continues Microsoft's pattern of buying into market segments where they have no presence. The trend started with their hotmail acquistion. Recently, they paid Nokia over $1 billion dollars to begin scrapping their Symbian cell phone OS in favor of the Windows cell phone OS. Just before that, they pressured Yahoo to "join" Bing, or die.

Skype has enjoyed success because it was a first to market service. They offered value to users for free (skype-to-skype video calling) or for low cost (skype-to-real telephone voice calls). Ebay found this business model difficult to monetize, and ended up selling it to a group of private investors for $2 billion, losing $600 million in the process. Analysts are wondering how Microsoft will recoup this new high purchase price. Comparing this sale to the last sale is a high factor: (2 billion * 4.25 = 8.5 billion). No matter how you slice it, 425% is a high scaling factor. Perhaps, the price climbed that high due to Microsoft winning a bidding war with Facebook. I saw some rumors last week that Facebook was trying to buy Skype for $4 billion. The question remains of whether a change in business model is in the offing to monetize this Skype investment. Will they begin charging for calls? That seems to be a difficult prospect in the crowded VoIP market- consumers have a lot of options, including Google Voice. Skype has had the advantage of better voice quality, and now consumers may be asked to pay for it.

First Update:
Slashdot finally picked up the story. Better late, than never. Their coverage points to some articles which question whether the new owner will have the same commitment to non-MS platforms. This change casts a serious pall over the Linux version of Skype. The pundits are predicting it will be left to wither on the vine, if not killed outright. I hope that isn't true, because I like Skype on Linux. If their strategy was to further entrench their Windows OS, then they should tread lightly. One potential unintended consequence that MS may not have anticipated is that Skype is a market leader, but hardly the only game in town. If users dump Skype, then a significant number would move to arch rival's product, google voice. A mass exodus is certainly a possibility if/when MS tries to change the rules by upping calling rates, and/or dropping support for other platforms. GV alreadly offers some attractive features. The only thing holding it back is its less than stellar call quality. If its implementation was slightly better, then it could compete easily with Skype. GV has one very nice feature: it offers to assign a "real" phone number. That real phone number can act as a gatekeeper for the myriad of numbers that people are likely to have (home phone, cell phone, office phone, etc.) Google's recommendation is to publicize your GV number, and then it will automatically forward incoming calls appropriately. It "finds the person," and just works with whatever device the user is currently using (real telephone, cell phone, computer, etc.).

Update: 2011-05-13
Some people (Brooks, Vaughn-Nichols) think $8.5 billion is a high price, especially since Microsoft is supposed to be able to write their own software. Apple rolled out FaceTime with no trouble. The linked articles question whether Microsoft's primary motivation for buying Skype was simply to stop other people (Facebook, Google) from owning it, and maybe, possibly doing something with it. Like I said, 4.25 times the last sale price is so high, it's beyond the moon.

Update: 2011-05-25
Slashdot reported yesterday that the cuts to other platforms have begun. They cited that Asterisk support for the open source software/hardware platform for building PBX is first on the chopping block.

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