Why is Microsoft buying Skype?

Damon,

Sorry for the repost here but My answer got lost as a comment to Andrew's. I see this as part of a larger strategy on two fronts, Business and Consumer.

1) Business - Skype recently introduced support for an industry standard called Session Initiated Protocol (SIP) as part of it's software. This allows third party communications equipment companies to use the Skype application as a "phone" on their equipment (such as Microsoft's pure SIP Lync solution).

Further, Skype uses a peer-to-peer transmission method that uses each user's computer to assist in the set up and routing of Voice over IP (VoIP) calls. This means that in addition to a user interface Microsoft gains an infrastructure over which to transmit calls without needing a network carrier other than as a provider for Internet services to the end user. This leads to the consumer aspect.

2) Consumer Voice - Microsoft has been lagging behind other "smart phone" software platforms such as iOS from Apple and Android from Google. This gives Microsoft yet another rich Unified Communications (voice+video+collaboration) software that it can integrate with Windows Phone 7 to regain some of that market share. In addition it provides a way to bypass some of the cellular carrier's network requirements as well (although I think MS would be cutting their own throats were they to do that). Further they are planning on deploying this on all their consumer devices such as Xbox. This would be a value add for that consumer base.

The question for me still is not WHY did MS purchase Skype but Why did they pay so MUCH. This is an over valued company in my opinion - they have a relatively small paying base of users and a wealth (if you can call it that) of non-paying free users. Where is the value from a pure dollars and cents perspective?

A relatively late additional thought. The CEO of VU TelePresence, which specializes in conferencing and telepresence solutions for small and mid-sized businesses (SMBs), said that Microsoft buying Skype underscores the need and growing demand for telepresence solutions tailored to and priced affordably for that segment. A bit self-serving, perhaps, but a view with which I agree. Given Skype's support for video conferencing and the Session Initiation Protocol (SIP), its technology could augment or supplant several Microsoft alternatives, as Maurene Grey observed. Skype plus elements of Microsoft's Business Productivity Online Suite (BPOS) could result in some new "SMB-friendlier" options for conferencing and telepresence than we've seen from Microsoft -- and perhaps from others as well...

Hope this gives you some ideas on why Microsoft would want to buy a Company like Skype.

I assume Microsoft bought Skype to improve their competitive position in the voice/video calling and communications sector. Obviously, Microsoft seems to have spent what many people think was a lot of money to buy rather than trying to build a similar installed base of consumers and business users.

While almost any acquisition seems to fail, Microsoft is capturing a relatively mature application suite with a good brand name, a large global consumer base and increasing sales that are nearing the billion dollar mark for wide area communications and connectivity. While the Skype brand may eventually go away, the installed base of users will probably not be lost over the next several years of enhanced releases.

The Skype application suite also comes with a relatively large installed base of MS PC business users around the world. I think it is safe to assume Skype is the application of choice in the consumer market and seems to be the choice for the outbound call center type business suite markets.

Microsoft will also capture what some would consider being valuable peering technologies. Microsoft will also receive protection from patent infringement issues in the future. Skype's development staff currently includes peering skills and techniques that Microsoft has not been able to successfully cultivate inside the client server and applications environment of Microsoft.

I would expect the acquisition will help Microsoft reduce their time to market dominance for a future consumer focused cloud collaboration service or potentially a new game/entertainment service rivaling Netflix. It also seems logical for them to include a Skype like suite in BPOS service, maybe as a Sharepoint voice/data/video service release, rivaling first gen VoIP voice carrier services like Vonage. If nothing else, I would assume they bought Skype to replace the less than stellar market results of the free net meeting suite that virtually no one uses.

Howard

With Microsoft's Nokia partnership and the Skype acquisition, it is clear that Microsoft wish to make a considerable impact on the number of windows mobile, UC, Cloud and WIndows Live sales amongst these business units.

This is fantastic news for users, as they can consume some of the great Windows desktop experience through Windows mobile and leverage Nokia platforms whilst utilising skype.

Outside Mobile, Skype presents an enormous opportunity to serve in many solution scenarios whether consumer or B2B.

MS/Skype relatioship presents fantastic opportunity for MS SMB and Office 365 customers.

Only good can come from this union !

Damon, I would say that their prime motivation would be to shore up their Unified Communications strategy.

Some other views are presented here:

http://www.focus.com/questions/information-technology/should-microsoft-purcha...

http://www.focus.com/questions/information-technology/microsoft-may-be-purcha...

Interesting comments here. For those still following how things will unfold with MSFT and Skype, I'll share my thoughts from yesterday:

http://jonarnold-analyst.blogspot.com/2011/05/microsoft-and-skype-now-thats.html

In my opinion, with big push behind Bing.com and the fact that Microsoft's heart and soul has been in social media/marketing for a while now, skype could be the start of many that Microsoft will integrate with their rest of the products. Google integration of product is a target.

These answers cover the main points of why to me. I would just emphasize that the recognition by enterprise providers that Unified Communications, which currently per Gartner is led by Microsoft, includes voice in its road map. Microsoft has some PBX and call routing capabilities today, but assuming Skype can fold in well this greatly solidifies their position in at least the SMB market. I think it will be a while before enteprises or large commercial IT shops look away from Cisco and Avaya, but when you roll in the native integration with Office (still the #1 productivity software despite the maturation of competing products), the value prop is simplicity in collaboration and communication. The anti-trust is expiring. It will be interesting to see where this all leads.

There is a bigger picture to this acquisition.Whether Microsoft's biggest ever acquisition proves a success will remain shrouded, if not in cloud, then in the work of integration for the next couple of years. Either way, it will make the next chapter in the battle royal between the software maker and its rivals that much more compelling. The Skype deal is an embrace of a more cloud-based world.I expect Microsoft to use Skype to polish its offering for business customers. It may well be available both in Windows 8, which is scheduled for release next year, and in some of the web-based services Microsoft has developed such as Azure and Office apps. It will also be joined to Lync, Microsoft's current video communication too.

Microsoft has historically balked at anything approaching open source or making public the code behind a piece of software and the acquisition of Skype presents an intriguing conundrum. There's a consensus among friends I have talked to that Microsoft will keep the majority of Skype's services free. And some believe that in an echo of Google's approach, Microsoft will make the code behind Skype's technology public in an effort to encourage its development.

With the move,Microsoft is essentially a business friendly software provider and has seen the software market grow in the personal side far faster than in the business side and so it is looking to bring a personal application to windows. It will try to integrate Skype into company directories and try and swallow up the video chat market for business. I think it hopes that people's familiarity with Skype will make it more attractive and businesses are more likely to pay for such a service than individuals.

Another theory that I have is that Skype may become a video version of office communicator and being standard within the enterprise. This theory is supported by the fact that existing conference systems are clunky and majority do not integrate well with the normal commercial office systems.Imagine that you can embed an application that provides that video conferencing capability reliably and seamlessly with the operating system and you have a tool everyone will want.In a nutshell I agree with Microsoft co founder Bill Gates that the deal is good for the company.

www.wanarua.com

Basically to kill Skype. Like everything Microsoft buys, it kills and makes insecure. I'm sure it's a pure UC play on Microsoft, but I think it got fearful of being left behind and made a mad dash to purchase Skype before Google or Facebook had a chance to make an offer. That last thing I'd consider for critical UC would be anything from Microsoft or Skype.