Skype Acquisition, Antitrust Finale, Windows Phone News Marked Microsoft Week

Microsoft’s week was marked by the largest deal in the company’s history: $8.5 billion for Internet communications provider Skype.

Should regulators sign off on the acquisition, Skype will become a business division within Microsoft, headed by 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 platform. 

Skype had previously found 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 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.

Skype remains one of the Web’s most recognizable consumer brands, although it’s faced increased competition in recent quarters from Google and a host of smaller VOIP (voice-over-IP) services. Analysts seemed split on whether the deal will prove ultimately beneficial for Microsoft. 

“Wall Street hated the deal when eBay bought it, and they only paid 1/4 of what Microsoft is now paying,” Roger Kay, founder and president of Endpoint Technologies Associates, wrote in a May 10 email to eWEEK. “In eight years, Skype hasn’t made any money, and even at the operating level, it would take three decades to pay out in cash terms alone.”

Others took a rosier view.

“Google and Apple and Skype have dominant consumerization brands,” Forrester analyst Ted Schadler wrote in a May 10 blog posting. “Microsoft does not. Until now. As a bonus, Google doesn’t get to buy Skype. And more importantly, neither goes Cisco.”

Microsoft will almost certainly look for a way to monetize Skype’s assets and massive customer base. “While it’s true that Skype has been slow to make money off its service, the potential is there,” Schadler wrote. “Local phone numbers, three-way video conferencing, business administration, and making calls to real phone numbers are all things that people will pay for.” 

By comparison, the rest of Microsoft’s week was far less momentous—even if the company did make some announcements related to its future direction.

On May 8, Brandon Watson, director of developer experience for Windows Phone, appeared on the Windows Phone Dev Podcast to discuss a broad range of topics including Windows Phone’s upcoming “Mango” update (also known as Windows Phone version 7.5).

Mango will include Bing Audio, which allows a smartphone to identify any song playing in the vicinity, and Bing Vision, an augmented-reality feature that will let a smartphone scan barcodes, QR Codes and the like. There will also be a turn-by-turn navigation feature, complete with voice guidance, and the ability to dictate SMS texts.

That’s on top of previously announced multitasking, which will allow Windows Phones to download new applications and content in the background, and streaming music via one application while working in another.

Microsoft executives have suggested Mango will arrive on the Windows Phone platform sometime in the latter half of 2011. The company is also prepping developers for the release of updated Windows Phone Developer Tools, which will (at least in theory) allow for the creation of more integrated and high-performance applications.

But Microsoft could have a long road ahead as it pushes for greater Windows Phone adoption among consumers. Recent data from The Nielsen Company suggests that 6 percent of consumers indicated they wanted a Windows Mobile/Windows Phone 7 smartphone as their next device, compared with 31 percent for Android, 30 percent for Apple’s iOS and 11 percent for RIM’s BlackBerry.

Microsoft can also pursue its future roadmap without Department of Justice looking over its shoulder, after the last elements of an infamous antitrust judgment expired May 12.

“As a result of the Department of Justice Antitrust Division’s efforts in the Microsoft case and final judgment, the competitive landscape changed, allowing the marketplace to operate in a fair and open manner,” read a statement released by the DOJ, “bringing about increased innovation and more choices for consumers.”

That statement also featured the DOJ taking a good deal of credit for the tech landscape as it stands today: “The final judgment helped create competitive conditions that enabled new kinds of products, such as cloud computing services and mobile devices, to develop as potential platform threats to the Windows desktop operating system.”

Microsoft’s own take on the matter was somewhat more muted.

“Our experience has changed us and shaped how we view our responsibility to the industry,” Microsoft spokesperson Kevin Kutz wrote in a statement widely disseminated online. “We are pleased to bring this matter to a successful conclusion.”

In 1998, the DOJ and attorneys general for 19 states plus the District of Columbia hit Microsoft with antitrust action over bundling IE with Windows. Although Microsoft’s counsel argued that IE and Windows were mutually dependent, the company found itself forced into a settlement in 2001.

Under the terms of that agreement, Microsoft agreed to share application programming interfaces with outside companies. In addition, “authorized representatives” were granted access to Microsoft’s software codes and records, and the company was forbidden from retaliating against OEMs if the latter contemplated distributing or selling competing software. The judgment also stipulated that Microsoft designate an internal Compliance Officer with “responsibility for administering Microsoft’s antitrust compliance program and helping to ensure compliance.”

While some parts of the judgment expired in 2007, May 12 marked the end of the antitrust chapter as a whole. Which means Microsoft can focus a bit more of its collective energy on something far more important: figuring out how it’ll absorb—and monetize—Skype.