Microsoft needs to prove Skype's worth

Michael Carroll
11 May 2011

The biggest hurdle to Microsoft’s $8.5 billion acquisition of VoIP provider Skype could be Nokia, a leading industry watcher says.

The software giant revealed plans to acquire the VoIP market leader yesterday.

But Fred Huet, managing director of Greenwich Consulting, says the deal only makes sense if the firm has a solid development strategy to make Skype profitable, and keep Nokia happy before it launches its first Windows Phone 7 smartphones.

“This is a bold move by Microsoft and may be a good idea if there is a strategic plan behind it,” Huet notes. While the deal is certain to “raise competition concerns,” Huet says Microsoft’s main battle will be integrating Skype with its mobile offering and forthcoming Windows Phone 7 Nokia smartphones.

Microsoft plans to run Skype as a separate business unit, combining the firm’s video and voice communications technology into its portfolio of real-time communications products. In non-PR terms that means Skype will be integrated into services including Xbox Kinect and Live, Windows Phone, Lync, and Outlook.

But Huet says it remains to be seen if the software giant has overpaid for Skype, despite the VoIP firm connecting 207 billion minutes of voice and video calls in 2010 from 170 million registered users.

Despite his doubts, Huet believes the deal sends “out a message that Microsoft is into the community as well as the communication game to a wide host of players,” including Web firms, telcos and manufacturers.

Perhaps more importantly, the deal will allow Microsoft to compete directly with VoIP manufacturers including Cisco and Alcatel-Lucent, Huet said. “The fact that it is a technology deal is something which Microsoft will be very comfortable with and, most significantly, Microsoft will be able to leverage its strong business presence and repackage it…into its core business package.”

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