What Skype Really Means to Microsoft

When Microsoft announced its intention in March to purchase Skype for $8.5 billion, I questioned the rationale behind the deal. You can read about my breakdown of the reasons Microsoft provided at the time in Microsoft + Skype, but I was able to identify three core reasons. First, Skype is a great brand, especially for consumers, and Microsoft is particularly lacking in that area currently. Second, purchasing Skype keeps the technology away from its competitors, especially Google. And third, while Microsoft has its own mature communications solutions, such as Lync and Messenger, Skype's technology uses a different architecture (it's based on peer-to-peer, not client/server like Microsoft's solutions, and thus may be better suited to the cloud computing future towards which we are now barreling).

I had my doubts about that last point, but with the US Department of Justice approving the deal this week, Microsoft's deal with Skype is all but assured. (There's still a small chance that EU antitrust regulators could attempt to thwart the purchase, I suppose, but I don't see this happening.) So it's time to move on to more pragmatic matters. And that is, how will Microsoft use this technology?

We do know that Skype will be brought to market by the new Microsoft Skype division, which will exist alongside other familiar Microsoft divisions such as Windows and Windows Live, Server and Tools, and Windows Phone divisions. This is an important point, I think. And it suggests that Skype technologies will exist outside of other core Microsoft products but be "infused" in them where it makes sense. Which I suspect will be quite frequently.

There are obvious candidates for communications services: Messenger and Lync on the desktop, Outlook, and the Xbox 360. On the online services side, Hotmail, Office 365, and Windows Live. Mobile devices such as Windows Phone, and competitors such as iPhone and Android. I imagine light blue Skype buttons everywhere in Microsoft's portfolio, as the company tries to maximize its brand awareness and get people to think "Skype" when they want to talk.

But this deal is not just about adding Skype to Microsoft's secret sauce. For this to really make sense, Microsoft will need to deeply integrate these technologies across products. That is, if you're a Skype user and you're logged on to the service from any of these products or services, you should be able to reach any of your contacts, regardless of how they're connected, and vice versa. For example, there's no reason you couldn't get an IP-based call while playing games on the Xbox 360, while the person calling is utilizing a PC laptop and headset while on a Wi-Fi enabled flight. 

Perhaps this pervasiveness is the real secret behind Microsoft's desire for Skype. And while it may take a while for the software giant to integrate this technology into its various products, one might further conjecture that by providing both client/server and peer-to-peer alternatives for online communications, Microsoft will arrive at an overall infrastructure that is more reliable than anything the competition could muster. In fact, this deal may represent yet another nail in the coffin of traditional land lines, another step down the path toward purely IP-based communications.

And that's why I think Microsoft's deal for Skype, finally, does in fact make sense. When the company announced this deal, I didn't get it. But if you accept that the future of what we now think of phone calls—essentially audio communications, but also video and video conferencing—is going entirely IP, with the Skype deal, Microsoft is right in the center of things. And regardless of the details of how the company intends to implement this technology, that nicely positions Microsoft for the next big wave of technology adoption as we collectively, as a planet, move to mobile devices as our primary form of computing. And if successful, it will provide Microsoft with yet another chance to position itself in users' minds as the company that is making it all happen.

That's what Skype really means to Microsoft, I think. And if I'm reading the tea leaves correctly, it suggests that the $8.5 billion asking price wasn't so outlandish after all.

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