2011 May 10

Microsoft and Skype just wrapped up the official press conference announcing the merger. Steve Ballmer led the discussion, followed by Tony Bates from Skype, and then Microsoft CFO Peter Klein talking about the deal.

Microsoft is understandably enthusiastic about this deal. They’re getting a great company, and a great brand with 170 million users, all of whom are potential sockets for their advertising business, as well as being buyers of Microsoft products in the future.

According to Ballmer, their “Vision is that products and services that Skype users know and love today will continue to grow and advance.” They’re committed to grow Skype on non-microsoft platforms, as well as optimizing Skype for the TV with XBox and Kinect, for Windows Phone, and the PC. At the same time, Microsoft wants to extend the reach of Skype by integrating with Lync, MSN Messenger, Hotmail, Outlook, and XBox Live.

Ballmer also underscored Microsoft’s commitment to business use of Skype. He cited the “incredible uptake” of the Lync Unified Communications Client, and talked about plans to enhance the client, plus connect to the Skype customer base.

One ongoing theme to Ballmer’s remarks is that we have many “personas” in our daily lives, and communications vehicles that bridge those personas. He used this slide to illustrate his point.

Next up, Tony Bates. In a nice nod to Microsoft, he noted that Skype was founded as a disruptive platform company in 2003, just as Microsoft had done with MS-DOS in the early 1980’s. Bates talked about the engagement of the user base. He said that Skype users average 100 minutes of user per month, which explains the interest in advertising as a monetization mechanism. Moreover, Skype sits at the intersection of three major internet trends, and is well positioned to exploit that advantage. He highlighted video, in particular.

Bates sees three key opportunities for what he described as “A platform and a set of services that can reach everyone on the planet.”

Core communications service – voice, plus video
New premium subscription services that layer on top of the base service
Advertising that monetizes the large audience.

Peter Klein’s remarks on the financials highlighted Skype’s strong performance, the all cash nature of the deal, the synergies between the companies, and their desire to finish the regulatory process by end of this calendar year.

From where I sit, this has all the makings of a great deal for everyone involved.

Microsoft and Skype customers win through a better customer experience as Skype becomes a ubiquitous connectivity option throughout the Microsoft product platform.
Skype gets access to the dominant financial resources, markets and channels that Microsoft has built for over 30 years.
Microsoft taps into a market of 170 million new customers that can be monetized across multiple product lines and businesses.
Microsoft takes a dramatic step toward a more compelling mobile story in the face of fierce competition from Apple and Google.

And Microsoft shareholders? Well, perhaps after 10 years of stagnation, the company’s stock price might finally move again.

And wouldn’t that be cause for excitement?

Steve Ballmer & Tony Bates Talk About Skype-Microsoft Deal (gigaom.com)
It’s Official: Microsoft Acquires Skype for $8.5 Billion (mashable.com)
Confirmed: Microsoft is Buying Skype for $8.5 Billion [Microsoft] (gizmodo.com)

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So Microsoft has acquired Skype for $8.5 billion. Whew! It’s a breathtaking sum, especially for a company who’s bread and butter is the prepaid telecom business.

Of all those rumoured to have been in the hunt for Skype, however, Microsoft was the suitor most able to take advantage of Skype’s network, ecosystem, and technology. Their investments in mobile, consumer, and enterprise communications are a quick answer to Skype’s ambitions in the same markets. Google, Facebook, et al simply didn’t have the breadth of offerings to warrant paying the price that Microsoft was willing.

So how does this change things?

Microsoft has now become the worlds largest carrier of international long distance minutes. What will this do to the occasionally fractious relationships that Microsoft has with incumbent telecom? Will national carriers view the disintermediation of the long distance business at Microsoft’s hands positively or negatively? Will the combined companies simply continue on Skype’s trajectory toward the eradication of that business, or will Microsoft try to finesse this for the sake of their carrier relationships? My guess is they’ll continue on Skype’s trajectory.

One of Apple’s biggest advantages in the market – Facetime – becomes a lot less significant. Microsoft now has a tool to compete against it, plus hundreds of millions of users. Moreover, there still isn’t a Facetime for Windows desktops, but Skype exists on both the Mac and Windows. And, Skype does multi-party video. Advantage Microsoft!

And what of the other handset manufacturers that Skype enjoys relationships with? Will Skype continue to support Apple and Google handsets, or will there be pressure from within Microsoft to advantage Windows Phone 7 by cutting off support for competing vendors? My prediction – Microsoft will treat Skype as a platform component. Their view of the “platform” now extends to the cloud and all kinds of non-Windows devices. For that reason, they’ll try to use the popularity of Skype as a means to establish beachheads on competitors handsets.

And how will the other handset platform makers respond? While Apple and Google have business models predicated on taking power from the carriers, RIM has taken the opposite tack preferring to ally with these powerful entities. Apple and Google have just seen Microsoft accelerate directly at their businesses. I suspect that RIM, however, will seek to entrench itself even more firmly in its carrier channel. The mere fact that RIM never permitted a 3G version of Skype on any of its handsets tells you everything that you need to know.

Press conference at 11. Let’s see what new details are revealed then.

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