Microsoft's Skype acquisition could allow the company to boost its fortunes in smartphones, and appeal to more decentralized, lightweight businesses.
Steve Ballmer is known for his public exuberance, punctuating keynote addresses
with the sort of high-decibel verbal fireworks commonly associated with
high-school coaches trying to goad a touchdown.
Developers! Developers!" is one of his more famous refrains.
headed into the final stages of its acquisition negotiations with VOIP (voice
over IP) and video-conferencing provider Skype, Ballmer's shout to any
Microsoft executives reluctant to embrace the deal might have been: "Synergy!
paying a lot for Skype: $8.5 billion. In return for that hefty chunk of change,
it will become a business division within Microsoft, headed by Skype's current
CEO Tony Bates. Skype in its new form will support Microsoft products, such as
Windows Phone and Xbox Kinect, and integrate across the breadth of Microsoft's
already-extensive portfolio-including the Lync unified-communications
But that's not
necessarily enough to justify the biggest-ever payout in Microsoft's history.
According to some analysts, the secret sauce of the Skype deal-so to speak-is
its potential to bolster Microsoft's recent partnerships with other companies,
as well as its relationship to the enterprise.
633 million users, fewer than 8 million are paying users. No matter. What is
important is that many of these users would love to make free calls on a mobile
phone," Mike Gualtieri, an analyst with Forrester, wrote in a May 11 corporate blog posting. "Microsoft's
plan to acquire Skype fits in perfectly with its recent partnership with Nokia
because both offer incredible reach."
words, Skype could allow Microsoft to boost its competitiveness in the mobile
realm against both Apple's iPhone and the growing family of Google Android
devices. "There is no stopping Apple when it comes to mobile and cultural
dominance," he wrote. "But Microsoft could displace Google as the alternative
based on the great UX provided by Windows Phone 7, the Nokia partnership and
the Skype deal."
Whether or not
that takes place-despite some analyst assertions that Windows Phone will
increasingly dominate the market, Microsoft's share of smartphones reportedly remains low-the
Skype deal could allow Microsoft to maintain its grip on a segment very near
and dear to its heart, or at least its bottom line: the enterprise.
That is, if
Microsoft manages to swallow Skype without too much indigestion, according to a
May 11 blog post by Yankee Group analyst Emily Green: "Two of the
many reasons these things fail after the photo-op: a) they buy something
sizzling hot, hoping to reinvigorate their own less dynamic offerings and
culture-but end up suffocating the entrepreneurial spirit in the acquired firm
that made it sexy in the first place. Or, b) they buy something that's only
available because it's on the ropes."
said, Green views the Skype-Microsoft deal as capable of sidestepping those
pitfalls, if only because supple, lightweight VOIP and video-conferencing
assets can serve Microsoft's designs on the enterprise.
as those enterprises shed physical infrastructure, "their leaders have to ask
some very tough questions about investing in conventional hard-wired
telecommunications infrastructure." That, in combination with employees'
seemingly unstoppable desire to bring consumer software into the enterprise, could
create an opportunity for Microsoft to "tightly weave Skype's functionality
into its corporate offerings" in ways that meet the approval of executives and
IT administrators. In turn, that could give Redmond the opening it needs to
"maintain relevance with the new breed of enterprises being born in this
concedes that earning back the enormous costs associated with the acquisition
"is another story."
itself an acquisition target in 2005, when eBay agreed to pay $2.6 billion in
cash and stock for the then two-year-old company. Four years later, a team of
private investors-including Silver Lake Partners and Andreessen Horowitz-took
it off the auction Website's hands for $1.9 billion in cash. Skype had reportedly
been raising money for an IPO, but that offering was delayed after the company
appointed Bates to the CEO role in October.
substantial bump-up in cash, Microsoft is purchasing one of the Web's most
recognizable consumer brands-albeit one that's faced increased competition from
Google and others in recent quarters.
But one of
Skype's private investors took to the blogosphere to discount that competition
as a threat. In a May 10 posting on his personal blog, Andreessen
Horowitz co-founder and partner Ben Horowitz suggested that Google's attempt to
market a similar VOIP offering had failed to stop Skype's momentum: "What was
the result of this effort? ... Skype new users and usage growth has accelerated
since Google's launch."
Facetime, he added, also failed to blunt Skype's momentum: "How did that impact
Skype's use on the iPhone? 50 million users have downloaded Skype's iPhone
product since the release of Apple's FaceTime."
If you believe
Horowitz's assertions, then Microsoft managed to sidestep the potential
acquisition dangers outlined by Green. But how well the company will integrate
its newest property-and create synergy with its partners-remains the question
of the hour.
Nicholas Kolakowski is a staff editor at eWEEK, covering Microsoft and other companies in the enterprise space, as well as evolving technology such as tablet PCs. His work has appeared in The Washington Post, Playboy, WebMD, AARP the Magazine, AutoWeek, Washington City Paper, Trader Monthly, and Private Air. He lives in Brooklyn, New York.