May 10th, 2011
11:59 PM ET

Microsoft buys Skype: What now?

Microsoft is buying Skype. One of the world's biggest software companies now owns the leading name in online telephony and video conferencing. It's the biggest acquisition in Microsoft's long and storied history.

So, um... what now?

The diversity of Microsoft's software lineup - everything from spreadsheets to games - means there are plenty of products Skype can transform.

Adding Skype's video conferencing capabilities to Office 365, the cloud computing version of the Office suite, would allow Microsoft to compete simultaneously with Google Docs and Cisco's teleconferencing solutions. Windows Phone can potentially bake Skype deep into the OS, not just as an app. And marrying Xbox Kinect with Skype is a dream for both: Microsoft can expand Kinect's video conferencing capabilities beyond Xbox Live users, and Skype gets an awesome motion-sensing camera to serve as its flagship hardware for the living room.

But Microsoft doesn't have the best track record when it comes to big buys, even when they seem to be a good fit.

There's Danger, the guys behind the (at the time) hot Hiptop and Sidekick phones. The eventual result of that purchase? The Kin One and Kin Two phones, which lasted all of two months before being canned. There's also in-game advertising firm Massive, which doesn't exist anymore; and WebTV, which... well, I don't need to say anything more about WebTV, do I?

But it goes beyond corporate acquisitions. Microsoft is a far more innovative company than its public reputation suggests. You just don't know it because many of their greatest products never get the spotlight they deserve, because they're caught in the company's massive bureaucracy.

Remember Surface? It introduced multi-touch computing years before the iPad... but where Apple targeted consumers, Microsoft sold Surface to businesses. Has anyone actually seen one? (I haven't.) There's also Courier, Microsoft's dual-screened tablet that never saw the light of day. There's PhotoSynth, the quite unbelievable photo-stitching software that has quietly existed for years without getting the attention it deserves.

Still, there are positive signs for Skype. The first product listed as having Skype support in Microsoft's press release is the Xbox, which is arguably one of Microsoft's most successful products of the last decade. The Xbox business has both made effective acquisitions (Bungie) and has been very proactive in pushing innovative products to market (Kinect). The Xbox division is seen as being extremely well-run, and Skype can only benefit from a close working relationship.

The other is that Skype is simply to big to disappear like Danger or Massive did. Microsoft says it will continue to support Skype on non-Microsoft platforms, so there's no reason for people to stop using it. For me, the worst case scenario is that Skype will not be fully integrated with Microsoft's various businesses, and will exist as it does now. Which would be a shame, because there is a real opportunity for Skype to make an impact on multiple levels of Microsoft.

Of course, that's what eBay probably thought, too.

soundoff (16 Responses)
  1. Kevin

    Now that Microsoft is buying Skype I'm sure they plan to make it Microsoft's answer to Google Voice. I hope Microsoft will incorporate the same features as Google Voice that allow you to make your own free phone service like this...


    May 11, 2011 at 4:53 am | Reply
    • Ogulcan

      Contrary to many of the opinions here, this deal makes good sense to me. MS just fileld a huge gap in their potential mobile / tablet OS: functional video chat. Skype also has the potential to link together a series of purely WiFi mobile phone plays. The NoSoft alliance could sell that world-wide. Here's a comment that lists many of the complaints about this deal, my thoughts follow."- Adds more debt to our balance sheet- Detracts from profitability- Further reduces average margin- Overlaps existing products- Gives us another non-contributing division when we're still losing billions per year and having serious problems (i.e. RPS) with the Yahoo integration- Doesn't provide any immediate advantage for the two most serious threats we face: our nearly dead mobile effort and completely dead tablet one- Gives Ballmer one more thing to divide his limited skill set over when he can't handle what he has already- Comes at the cost of not putting that $8.5 into things that didn't have these attributes or providing a much needed dividend doubling to incent anyone to buy our long dead stock"1) MS paid cash that was stuck overseas, not debt. They avoided US taxes on the $8.5B too, that's an immediate discount to the sale price.2) It adds a break-even brand that fills a gap.3) Margin drop on those revenues isn't material.4) Brand and tech have future possibilities.5) Mobile requires video chat, just forget that Live Win SpamBot toy.6) NoSoft integration wouldn't require much effort from Ballmer personally.7) MS stock will flatline faster than almost anyone imagines if the NoSoft partnership swirls down the toilet in 2012. The aspect of the deal that I find most interesting and informative is that MS didn't use any outside advisors. Some here refer to that as foolishness on the part of Ballmer and the board. I can't see that because people at that level know how to avoid civil lawsuits and a foolishly willful waste of assets is a lawsuit magnet.If the directors and management are not total fools, then they must be privy to specific plans to use the Skype brand and technology in a product that will be fairly easy to implement; mostly likely by NoSoft.

      March 5, 2012 at 1:52 am | Reply
  2. Nguyen

    wow. biggest microsoft acquisition. i wonder what'll happen with skype now

    May 11, 2011 at 7:30 am | Reply
  3. nickyboy

    As long as its still free and ADs don´t start popping up in the middle of the screen during the calls then fine...

    May 11, 2011 at 9:30 am | Reply
  4. Skype user

    Windows is office environment for users that use the computer only to write e-mails and as a typewriter. Now Skype will work only in Windows. I'd rather switch to Google chat and telephone service.

    May 11, 2011 at 10:31 am | Reply
    • Zeynep

      I can't wait until they start transitioning Skype away from all their non-Windows tohenclogies which actually work, so they can "dogfood" it to remain a doctrinally-pure Microsoft subsidiary. on the earlier potential purchase of Yahoo certainly seems relevant to the technological challenges facing the Skype acquisition, particularly in light of past examples:Skeptics of Microsoft's ability to eventually digest Yahoo's infrastructure point to the initial embarrassing failure that occurred when Microsoft tried to absorb the Hotmail electronic mail service it acquired in 1997.At the time the service ran on the open-source FreeBSD and Sun Solaris versions of the Unix operating system. Microsoft tried to move the service to its Windows NT operating system, but that was unsuccessful.Later it was able to move it to a more advanced version of its Windows Server software, but was still chagrined when open-source advocates found that FreeBSD was still being used for portions of the service that required performance and stability. Microsoft acknowledged that Hotmail's transition took 3 years, but some analysts say they think it took even longer.And we already have Danger/Sidekick to illustrate the worst-case scenario if technology integration doesn't go well...

      March 3, 2012 at 5:14 pm | Reply
    • VII

      Some random thhugots while reading the posts over the last 24 hours:"...I hope, MS is going be a carrier of the future...""...We are pretty close to completing our own high speed dwdm network that cris-crosses the US and can carry terabits a second of traffic..."I would think that a terabit network is the backbone. Getting the last mile is another story altogether. And if people think AT&T and Comcast are bad, can you imagine the complaints about a Microsoft carrier service? If you think it's hard speaking to a AT&T service rep now, when was the last time you tried calling Microsoft customer service?"...It's about Ballmer's long-term aim to make Microsoft back into a hit brand with consumers..." Look at our track record. We are NOT good with consumers. Kinect may be the exception (I'll concede that point before someone flames me on that one case). Can someone tell me how much incremental revenue these Microsoft retail stores are bringing in? Think about that in the context of the thought above on Microsoft being your internet and phone carrier."...there are a lot of smart people in Redmond who have thought this thing through..." Why do the executives at Microsoft all think they have the exclusive on smarts? And the folks in the real world don't know what they are talking about? They must think that way if they never consulted for outside financial advice, and put this together in such a short time frame.It's a scenario that has been played out time and time again. Skype will tell the new Microsoft bureaucracy, "Hey, remember you bought us for what we bring to the table."Microsoft MBA weenie: "Yeah, the operative word is that WE bought YOU. So do things our way."A year later, all of the Skype employees will quit as soon as the retention bonus hits their bank accounts. Three years later, "Skype? What's Skype? Oh yeah, it's something they used in the old days, like the telegraph, right?"

      March 5, 2012 at 4:58 am | Reply
  5. christopher sferrazza

    Like a new puppy in a household full of short attention span kids – Skype (a fantastic groundbreaking product) will die a slow and horrible death due to its "decision by committee" mentality. There are no leaders in Mircrosoft – just "yes" men.

    Say what you want about Apple – but vision is usually seen by one person – love him or hate him.

    May 11, 2011 at 11:09 am | Reply
  6. Business Money Today

    Yes – now what. I know that they see potential revenue from all those free subscribers. But, if they think they will convert them to paid users, they have another thing coming. And, they still won't be able to compete with google!


    May 14, 2011 at 10:48 pm | Reply
    • Poonam

      I don't think its going to cost money for comtepur 2 comtepur, And I think the rates will only drop now and also skype will gain way more usersI think this will be good for skype aslong as microsoft keeps its running.

      June 28, 2012 at 12:08 am | Reply
  7. Water

    i think the acquisition of Microsoft is very beneficial in the field of online telephone Microsoft now is taking a huge leap to expand the market at home and abroad.It can compete against with Apple not only on video but on audio fields

    May 15, 2011 at 10:52 am | Reply
    • Gianina

      Thanks, Dave. I love Gist and you are right it does take some time to use the full power of it. It's sort of like using HootSuite where once it's configured you have a lot of data at your fiegnr tips. My only disappointment with Gist right now is it doesn't work yet with Outlook 2011 for Mac and I want access to it there but I have a feeling that will happen too as well. Let me know if you see any other cool tools people can use for business. I would love to highlight them!

      May 20, 2012 at 1:24 pm | Reply
  8. Rachel

    Skype will add a whole new demention to Microsoft!! I can't wait to see the final outcome of this whole deal. It's going to be cool...

    May 17, 2011 at 1:38 am | Reply
  9. Mário Silva

    Great success for ICT future security and features development.

    A happy day for all the bigest Partners in COMMUNICATIONS efficiency.

    May 17, 2011 at 6:32 pm | Reply
    • Diamantt

      The mainstream news crgvoaee today didn't know what to make of micoSkype. The consensus seemed to be broadly positive while acknowledging the deal was a brave gamble to stay relevant.Overnight the consensus is shifting to Bubble 2.0 where microsoft overpaid by $4b, and now whispers that Larry Page (unlikely IMO more likely skype suits) somehow outplayed or tricked steveB into a 100% over-valuation. Worse we did not obtain third party external financial advice on the acquisition so as to save several million in pocket-change. Those same financial institutions we cut out of the deal are now starting to crow how this is a monumental all-time epic over valuation. The FI do not appreciate being cut out of the loop and – partly out of spite – are dispatching their analysts to kick the decomposing corpse of steveB's reputation.If the accepted narrative becomes Larry Page conned SteveB, and skype is really worth < 50% of the acquisition price – just one day after the announcement surely steveB will have to go. It is just gross incompetence and too embarrassing for the company. Even if it isn't true and we have realistic plans to somehow leverage significant videocall profits over the next decade then the widespread media perception of a foolish acquisition may still be enough to push the board to topple steveB punishing him for a truly terrible decade of successively more wasteful acquisitions.IMHO if the mainstream financial media mostly run stories mocking this deal over the next 24hrs specifically criticising steveB for reckless schoolboy-error massive over-valuation (perhaps mentioning moby-dick and larry page) & stock hits 52wk low – then steveB will finally be toast; end of.

      March 3, 2012 at 6:15 pm | Reply
  10. Mário Matos

    Yes, it is Microsoft's answer to Google Voice. I hope Microsoft will incorporate the same features as Google Voice that allow you to make your own free phone service like this. from GadgetsOK.com

    December 12, 2011 at 5:21 am | Reply

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