A View from Erica Naone

What Does Microsoft Want With Skype?

Microsoft pays $8.5 billion for the Internet phone service–will it gets its money’s worth.

  • May 10, 2011

In a deal that has some experts scratching their heads, Microsoft announced today that it’s acquiring Skype for $8.5 billion.

Reuters’ Bill Rigby writes that, while Skype’s technology was groundbreaking at its height and is still quite valuable, it’s hard to see how Microsoft will manage to get its money’s worth:

Microsoft is hoping that more business users would be willing to pay for Skype if it is integrated with Outlook e-mail, which hundreds of millions of people already use, or that more gamers will pay to join the Xbox Live network if real-time video and voice services are added.

It should also allow its new Windows Phones to compete directly with Apple Inc and Google Inc smartphones, which already feature video chat.

But some investors carped that Microsoft already had the technology to do this, or should have developed it itself, and may soon be overtaken.

Peter Bright in Ars Technica writes that Microsoft certainly has technology it could have developed into the features it’s hoping to get from Skype:

Microsoft’s own software already has considerable overlap with Skype. Windows Live Messenger offers free instant messaging, and voice and video chat. It currently boasts around 330 million active users each month, typically with around 40 million online at any one moment. Microsoft has an equivalent corporate-oriented system, Lync 2010 (formerly Office Communication Server) that allows companies to create private networks that combine the communications capabilities of Live Messenger with corporate manageability. The underlying technology of both platforms is common, allowing interoperability between Live Messenger and Lync. The company also plans to integrate Kinect into Lync to create more natural virtual presences.

Even considering Skype’s paying users, Bright writes, Microsoft still seems to have paid too much.

USA Today quotes IDC analyst Al Hilwa offering some explanation for the high price that Microsoft paid:

“If Skype ended up in the hands of Google, it might have been able to use it to strengthen its ecosystem at the expense of Microsoft,” says Hilwa.

But keeping Skype out of the hands of Google,may have furthered a different company’s agenda, says Om Malik of GigaOm:

The biggest winner of this deal could actually be Facebook. The Palo Alto, Calif.-based social networking giant had little or no chance of buying Skype. Had it been public, it would have been a different story. With Microsoft, it gets the best of both worlds: It gets access to Skype assets (Microsoft is an investor in Facebook) and it gets to keep Skype away from Google.

Facebook needs Skype badly. Among other things, it needs to use Skype’s peer-to-peer network to offer video and voice services to the users of Facebook Chat. If the company had to use conventional methods and offer voice and video service to its 600 million plus customers, the cost and overhead of operating the infrastructure would be prohibitive.

Malik adds that Facebook could also help Skype garner more users and revenue.

Want to go ad free? No ad blockers needed.

Become an Insider
Already an Insider? Log in.

Uh oh–you've read all of your free articles for this month.

Insider Premium
$179.95/yr US PRICE

Want more award-winning journalism? Subscribe and become an Insider.
  • Insider Premium {! insider.prices.premium !}*

    {! insider.display.menuOptionsLabel !}

    Our award winning magazine, unlimited access to our story archive, special discounts to MIT Technology Review Events, and exclusive content.

    See details+

    What's Included

    Bimonthly home delivery and unlimited 24/7 access to MIT Technology Review’s website.

    The Download. Our daily newsletter of what's important in technology and innovation.

    Access to the Magazine archive. Over 24,000 articles going back to 1899 at your fingertips.

    Special Discounts to select partner offerings

    Discount to MIT Technology Review events

    Ad-free web experience

    First Look. Exclusive early access to stories.

    Insider Conversations. Listen in as our editors talk to innovators from around the world.

  • Insider Plus {! insider.prices.plus !}* Best Value

    {! insider.display.menuOptionsLabel !}

    Everything included in Insider Basic, plus ad-free web experience, select discounts to partner offerings and MIT Technology Review events

    See details+

    What's Included

    Bimonthly home delivery and unlimited 24/7 access to MIT Technology Review’s website.

    The Download. Our daily newsletter of what's important in technology and innovation.

    Access to the Magazine archive. Over 24,000 articles going back to 1899 at your fingertips.

    Special Discounts to select partner offerings

    Discount to MIT Technology Review events

    Ad-free web experience

  • Insider Basic {! insider.prices.basic !}*

    {! insider.display.menuOptionsLabel !}

    Six issues of our award winning magazine and daily delivery of The Download, our newsletter of what’s important in technology and innovation.

    See details+

    What's Included

    Bimonthly home delivery and unlimited 24/7 access to MIT Technology Review’s website.

    The Download. Our daily newsletter of what's important in technology and innovation.

/
You've read all of your free articles this month. This is your last free article this month. You've read of free articles this month. or  for unlimited online access.