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Thoughts on the Skype purchase

On the surface, it’s a little bit confusing. Microsoft is out for money. What interest do they have in Skype? That, it turns out, is the 8.5 billion-dollar question. Where Skype is successful, it’s only marginally so; in fact, it lost $7 million in the last year. Microsoft clearly isn’t aiming for direct profits. On the other hand, Skype has almost 700 million registered users. For comparison, that’s slightly more than Facebook. Unfortunately, Skype’s main service is free of charge, with only small fees for calls to phones and group video chats.

Let’s start off: Skype is currently multi-platform. It’s available for Windows XP, Vista, and 7, for Linux and Mac OS X, and for Android, iOS, Blackberry, and Symbian. Microsoft CEO Steve Ballmer has clearly stated that Skype will be continued for “non-Microsoft platforms”, but did not mention any specifically. He went on to state that limiting the userbase would reduce the value of Skype, which is completely true. However, it also works the other way – limiting Skype users to certain platforms reduces the perceived value of all other platforms.

My suspicion is that Microsoft will continue to support many platforms, but not all of them. I don’t think there’s any way they can drop support for Mac OS X without rendering Skype nearly worthless as millions of users switch to a different VoIP service. However, Linux doesn’t have nearly the installed userbase that the Macintosh has, and I suspect only a minority of Linux users are interested in Skype to begin with. I don’t believe that Skype for Linux holds much value, so I don’t think it’s very likely that Microsoft will continue to support it.

The second system to go will be Windows XP. Microsoft has been trying very hard to kill XP in recent times – just look at Internet Explorer 9 for an example. They want people to stop using XP for two reasons: because it’s holding up progress, and because they want to sell more Windows 7 licenses. Windows XP is still the most common operating system in the world, for the time being.

Lastly, I can’t see Microsoft funding work on Skype for Android. Google is probably Microsoft’s top rival, and Android is rapidly becoming one of the most popular mobile platforms. This product competes directly with the Windows 7 Phone. I’m predicting Microsoft will do whatever it can to curb the growth of Android, even at the cost of hurting Skype.

Don’t be too surprised to see Skype bundled with Windows Live Essentials and frequently pre-installed by manufacturers on all new Windows systems starting in a year or so. It’s the strategy Microsoft has used a dozen times before, with Office, Internet Explorer, Windows Media Player, MSN, and Windows itself. Microsoft is fully aware that most people won’t know how to install a competing product, and it’s going to count on that to boost the usage of Skype. Once ubiquitous, they’ll use Skype to boost the rest of their products, from Windows 7 Phone to Windows Live and possibly even the Xbox.

A possibility that I’m not too sure about is embedding advertisements in the Skype client. Microsoft doesn’t seem to object to this practice, as they’re willing to do it to MSN users, but adding ads after Skype has been ad-free for years may result in a nasty backlash from the userbase. There’s no doubt that ads would make Skype more profitable in the short term, but it may have the side-effect of making it less of a weapon in the long term.

Has Microsoft overpaid for Skype? Probably, but not by too much. It may not have $8.5 billion immediate value, but with proper abuse, it could turn out to be the very thing Microsoft needs to catch up to its competitors. You Skype users out there had better hope they don’t mutilate it too badly.

Written by Likes to Ramble

1 Comment

  1. Mike · May 15, 2011

    Skype is already preinstalled on most consumer computers. I’m sure Microsoft doesn’t care. Their buying Skype a) makes its technology available to Facebook Chat; b) keeps it away from Google, who was probably never really serious anyway; and c) opens up the market for corporate video teleconferencing, since Cisco is making a big play for that, against Apple and a few niche players.

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