Microsoft Acquires Skype to be the Communications Anchor Across its Portfolio
Matthew Casey, Research Analyst, and Allan Krans, Senior Analyst, TBR
2011-05-11
Skype will support Microsoft’s communication capabilities from a functional, but likely not a financial perspective
Microsoft made a bold move yesterday morning snatching up Skype for $8.5 billion in cash, in the face of a potential IPO and possible acquisition interest from Google. The communications company, which made its name providing free video and voice calling capabilities on PCs via the Internet, has approximately 660 million active users across both the consumer and business markets.
Although Skype has been able to develop a significant following, the company has struggled to turn a profit since its launch in 2003. While the acquisition may not reflect a positive ROI for Microsoft in the coming quarters, the company hopes Skype’s technology will help drive traffic to its emerging lines of business, and position the company to compete better in both the consumer and business spaces.
As Microsoft CEO Steve Ballmer stated in yesterday’s press conference, the acquisition of Skype will be "much more than the sum of its parts". While the Skype business model has not yet yielded significant profitable returns, Microsoft is acquiring a proven communication platform with a vast number of users across multiple devices. Making a significant step to build Web conferencing capabilities, Microsoft has positioned itself to go toe-to-toe with the likes of Apple’s Face Time, and Google Video Chatting in the consumer space, and Cisco’s Webex and Telepresence offerings in the enterprise market.
Skype will be the glue that holds together Microsoft’s consumer communications business
As stated by Skype CEO Tony Bates in yesterday morning’s press conference, Skype’s corporate vision of communication hinges around three primary modes of communication: the PC, mobile phones, and the living room. Microsoft’s existing activity maps to this vision; with its Office Platform and Windows OS occupying the PC world, the recent launch of its Windows Phone 7 rounding out its mobile phone business, and both the Xbox 360 and Kinect filling up living rooms around the world. The addition of Skype allows Microsoft to effectively integrate all three spaces to operate in unison with each other.
Skype’s vision of cross device communication has been proven in recent years, with video and voice calling made possible across both PCs and mobile phones. TBR expects Microsoft will use Skype’s established communication platform to generate traffic across all three arenas, by attracting consumers with an unprecedented communication opportunity. Consumers will be able to communicate with both voice and video across any device (Microsoft and non-Microsoft) including PCs, tablets, mobile phones, and now TV’s through Microsoft’s Xbox 360.
Steve Ballmer maintains that Skype will remain available to non-Microsoft platforms, including Android devices and Apple Phones. TBR believes that Microsoft will capitalize on this new captive audience and attempt to market other Microsoft offerings to these users. In addition, TBR predicts that consumer demand for Skype’s proven technology and convenience will force companies like Apple, known for offerings like FaceTime which communicates only with other Apple devices over WIFI, to continue offering Skype on its devices.
Skype’s applicability moves beyond consumers
In addition to the Skype market opportunity in the consumer space, TBR also sees opportunity for Skype to galvanize Microsoft’s enterprise offerings. With customer concerns regarding communication and collaboration gaining significant momentum, Microsoft can utilize Skype to bolster its LiveMeeting offering.
TBR believes that Skype will be partially integrated into Windows LiveMeeting, driving significant value for customers and positioning Microsoft to compete against its biggest competitor in the space, Cisco - specifically against their WebEx and Telepresence offerings. Skype’s potential integration will allow enterprise users to communicate and collaborate with each other in live meetings across mobile devices, PCs and tablets, through both voice and video capabilities.
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