Microsoft and Skype: What It Means for the UC Community

9 May 2011

For Starters

BIG news - Microsoft bought Skype for $8.5 billion. Many in the IT community are laughing, even scoffing at the idea. We all know of Microsoft's less than stellar history of acquisitions in the past. This one, however, is significant and, in my opinion, a power play by Microsoft to prevent Google from further eroding the voice UC market with its Google Voice product and affiliates and adding a significant player to Microsoft's UC portfolio.

The News

Just days after reports that Google and Facebook were interested in partnering with Skype (and possibly buying), Microsoft announced that it was buying the company for $8.5 billion.

Last year, Skype had revenue of $860 million - posting an operating profit of $264 million, and overall posted a small loss ($7 million) and long-term debt of $686 million. This was now the second acquisition for Skype:

In 2005 eBay purchased Skype for $2.6 billion
In 2009, eBay turned around and sold 70% to private investors valued at approximately $2.8 billion

This acquisition will rank as the single LARGEST acquisition in the 36-year history of Microsoft (surpassing the $6 billion acquisition of advertising firm aQuantive in 2007).

Skype currently has approximately 1/3 the number of active users that Microsoft's Live Messenger product, who offers free IM, voice and video chat functionality (330M to Skype's 124M users). The key difference is this: Skype has 8 million paid users, integrating telephony calls (in/out) and video connectivity.

Skype is one of the leading brands in the consumer and SMB IP voice calling and video space. It has a global footprint with points of presence and is growing. In the consumer and SMB space, Skype is a strong competitive threat to Google and Cisco among others.

The Strategy (In My Opinion)

This strategy could be game-changing for Microsoft regarding its presence and penetration into the UC marketplace. For example:

Microsoft, for sure, has begun to show its "face" now more than ever into the Unified Communications marketplace. Adding a consumer and commercially based voice and video over IP product further expands their presence in the UC market. From this vantage point, the Microsoft acquisition is very strategic.
Microsoft was quick to outbid Google and make a stand (at least in principal) opposite Google's Voice platform.
Microsoft can now integrate the Skype product line with Facebook, providing an additional vehicle into the social-network marketplace. This presence in the social network market could be a huge play in favor of Microsoft and its products integrating with such.
Microsoft already integrates with the major video conferencing manufacturers through Lync, including Polycom, Tandberg, LifeSize, and Radvision.
With the addition of Skype, consumer-based and commercial based desktop videoconferencing offered by Skype can now integrate with the same above video conferencing systems (LifeSize for one, has announced integration with Skype via its business-class video conferencing solution, LifeSize Passport, creating Skype-based video calls worldwide integrating with an internal Lifesize directory).
Skype last year launched SkypeConnect to enable enterprises to access Skype's global network via SIP trunks - Microsoft can now more realistically "play" with the carriers that Skype has already been able to do so with.
The acquisition will increase real-time video and voice communications for Microsoft, further expanding its presence in the UC marketplace. The combination will extend the Skype-recognized brand and carrier-integration, extending Microsoft's portfolio for real-time UC-based products and services.
From a mobility standpoint, integrating Skype functionality into a Windows-based smart phone would again be a game changer for Microsoft in the mobility space. It gives Microsoft an app that can facilitate future versions of the Windows mobile app and its presence in the mobility marketplace.
In the future expect Skype integration with the Microsoft Lync product line giving Skype the ability to integration directly to Lync for collaboration, IM/chat, presence, and document sharing tools among others. Also expect Windows Mobile integration with Skype, providing a strategic differentiator in the mobile marketplace.

Conclusion

So for those that saw the Microsoft acquisition as nonsensical I think missed the BIG picture for Microsoft's stake and presence in the UC market: it was a strategic move by Microsoft to stop an acquisition by an arch-rival, Google, and was able to further entrench itself into the UC marketplace and help facilitate the evolvement of UC as we know it into a fully-integrated collaborative technology. Microsoft must still evolve and compete head-on with the Ciscos and Avayas and other UC-manufacturers of this world for UC integration or replacement (and possible long term dominance). Microsoft must continue to focus on system reliability and UC-uptime as a precursor for successful UC deployments (without such reliability the enterprise community will never take Microsoft seriously in the UC space).

With the Skype announcement, Microsoft will further help develop UC as we know it today via collaboration and integration with its current Lync product line.

These are exciting times in the UC market, for sure.