Microsoft Acquires Skype: Deal Closed!

Overnight Microsoft announced they had closed their acquisition of Skype, following the final EU Commission regulatory approval last week. Key points:

• Skype will remain as an independent business unit within Microsoft under the leadership of former Skype CEO Tony Bates who becomes President of Microsoft’s Skype Division. It’s a new tact for a Microsoft acquisition.
• Microsoft anticipates the integration of Skype into many of its current products – the most obvious being Skype for Windows Mobile and Outlook integration (as well as other Office products). But there are opportunities foreseen for Windows Live offerings as well as its Microsoft Lync enterprise offering.
• Whereas Skype had little enterprise presence other than small businesses and employees who would use it at work, it will be an interesting challenge to see how Skype becomes integrated into Microsoft Lync. There are challenges on the Microsoft side not simply from a technology perspective but also from a business perspective, for example, the costs and burdensome licensing associated with their server-based products.

Tony Bates has put out his vision statement, including a video and an supporting infographic, for Skype’s direction within Microsoft:

Microsoft is committed to the ubiquity of the Skype experience – communication across every device and every platform will remain a primary focus. And we’ve only scratched the surface. We’re at the starting line of integrating world-class talent, innovative technologies and products. By bringing together the best of Microsoft and the best of Skype, we’ll deliver amazing new experiences for consumers and business around the world.

Leading up to the closing we have seen some subtle activity on the Skype side:

• Most notably new releases of most Skype client software that incorporates advertising. Skype intends to place ads in a discrete manner during Skype-to-Skype calls made by users who are not generating revenue through Skype credit, a Skype Calling Plan subscription or a Skype Premium subscription. As mentioned by Skype CEO Tony Bates at a recent forum event, one of Skype’s goals is to generate major revenue through this advertising initiative.
• Skype has continued to offer upgrades for all its supported platforms over the past two months, not only supporting the claim that Skype’s brand would be damaged should they stop supporting platforms other than Windows but also supporting Skype’s initiative to provide more incremental upgrades every two to three months.
• A strong emphasis on Skype’s unique ability to drive video communications in a way that encourages easy adoption (more in a future post).
• Last night Skype released hotfix upgrades to Skype 5.6 for Windows that removed a Google Product Bundle offering, comprising the Google Toolbar and the Chrome browser, during installation. (Will we be seeing a Bing product bundle soon?)
• While Skype has made some top level management changes over the past few months, they appear, with a few minor exceptions, to have kept their operating staff, whether on the developer side or marketing side.This brings an experience base that is critical to meeting Tony’s goals in a timely manner.

And some questions:

• Will we see a Skype for BlackBerry? Can Microsoft leverage its relationship with RIM to resolve this issue? (This has been a most requested feature on one LinkedIn forum discussing what users want to see on the Playbook.)
• How will Skype now encourage third party application development? Will there be support for using web-based tools meeting the IETF’s RTCWeb initiative? What is the road map for SkypeKit?
• Will we see Skype Online numbers for Canada?
• And, in the longer term, will Skype pass the “AmberMac Test”?
• Can Microsoft become as ubiquitously associated with leadership in real time communications as they have been in the evolution of desktop operating systems?

About thirty years ago I worked for a company that had developed Magnetic Resonance technology that was evolving from chemical analysis applications into the medical imaging field. This company initially attempted a partnership with GE who were the leading medical imaging company of the day, especially with CT scanners but were just dipping their toes into learning magnetic resonance technology. However, my employer of the day did not have the financial or other resources required to jump from a business selling $100K to $500K systems to a research market into a business selling $3 million systems into a medical market (with all its regulatory implications). In the end GE simply acquired the company’s magnetic resonance division and has now become a leader in the MRI market. I see a similar opportunity here for the combination of Skype’s technology resources with Microsoft’s financial and business resources along with their market reach.

One final comment: over the past five and a half years I personally have come to meet many Skype employees. Their common thread and over riding motivation was their participation in an initiative that was revolutionizing real time communications on a world class scale. It has been a pleasure to work with them across several projects. Let’s hope they can continue to thrive under the Microsoft umbrella; they are a key resource to the success Tony envisions. Congratulations are due to all the members of the Skype team that made this transaction possible.

It will be an interesting ride. Can they execute? What will happen with the user experience? Will it drive a significant return on a $8.5 billion investment?

What’s your take? What are the opportunities and what are additional questions beyond the list above? Look forward to your comments.

Just as I finished writing this post, Dan York put up his views over at Disruptive Telephony:

My interest was not only in the “across all devices”, which has been a large part of Skype’s goal for some time… but also in the use of “real-time communications”. For a while that was a phrase that only the more technical-minded folks used, but now increasingly “real-time communications” seems to be the phrase of choice for many. I, for one, applaud the usage.

Read Dan’s post for another perspective on the acquisition.

Update: Phil Wolff at Skype Journal: Skype: New owners, new customers, new channels.

Full disclosure: The author is an involuntary participant in the Canada Pension Plan – a beneficiary of this acquisition. Now CPPIB is looking at investing in a retail chain called “99 cents” stores.