Skype's new mobile dilemma

11 May 2011

As you’ve no doubt heard, Microsoft has just acquired VoIP player Skype for $8.5 billion. And of course everyone wants to know what it means.

The answer, as always, depends on the angle you’re looking at.

From the financial angle, analysts are wary of the price tag and can’t help remarking that Microsoft has a terrible track record with making acquisitions pay off. Fred Huet of Greenwich Consulting says Microsoft had better have a strategy to make Skype profitable (Skype having lost $7 million in 2010, and has long-term debt of $686 million, though as All Thing Digital has pointed out, Microsoft’s Online Services division lost more than that in its most recent quarter).

In terms of Microsoft’s overall product portfolios, ABI Research's Aapo Markkanen says Skype should be a nice fit with MS products like its Xbox and Kinect game consoles and Lync UC offering.

Ovum principal analyst Richard Edwards also says Skype is a good fit for Microsoft's business model, and that it needs something to compete against Apple’s FaceTime. There’s also Skype for Business, which targets SMEs who want voice and videoconferencing integrated into their SIP-enabled PBXs.

On the international voice front, TeleGeography’s Stephan Beckert points out that, in effect, the Skype purchase effectively makes Microsoft the largest provider of cross-border voice communications in the world. TeleGeography estimates that approximately 96 billion minutes of Skype’s on-net traffic in 2010 was international, up from 57 billion minutes in 2009. More over, Skype’s international traffic volume grew 39 billion minutes last year, more than twice the volume gain achieved by all telephone companies in the world, combined. Microsoft now ostensibly owns that.

GigaOM says the deal is great news for Facebook (which was rumored to be considering a Skype buyout), because Microsoft is one of Facebook’s investors, which means it “gets the best of both worlds: it gets access to Skype assets … and it gets to keep Skype away from Google.”

All fair points. For my money, though, the biggest questions center on the mobile angle.

For a start, what does it mean for Nokia? Nokia took a big chance on Windows Phone 7 for its smartphone strategy – the last thing it needs is for Microsoft to integrate Skype into WP7-powered Nokia smartphones, only for it to go haywire. (Nokia already has a version of Skype’s mobile video client for its Maemo-powered N900.)

There’s also the bigger question of Skype’s overall mobile strategy of partnering with carriers, and whether cellcos will still be as keen to establish such a partnership with a Microsoft-owned company. The OS platform discussion is bound to come up, and while Microsoft has stressed that Skype will still support Apple’s iOS and Google’s Android platforms, one of Microsoft’s biggest motivations in forking out that much money for Skype is said to be acquiring a video-enabled VoIP technology that can compete directly with Google Voice and FaceTime.

Microsoft will have its work cut out striking the right balance of supporting multiple platforms whilst tarting up the WP7 version with enough extra added value enough to make it the sexier version. At the very least, it’s not going to throw a lot of resources into making a version of Skype that offers more functionality and performance on Android than WP7 or Xbox (not intentionally, anyway).

Either way, Microsoft needs to step carefully on that front, if only because many consumers have learned not to expect much from Microsoft, from Vista and every version of Windows Mobile up to WP7 to the frequent security problems and ubiquitous “blue screen of death” jokes. Think of it this way: Skype has had two major outages in the last four years – Microsoft will get to shoulder the blame for the next one. And it won’t be pretty.

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