Microsoft Eyes Skype

You must have heard the news - Microsoft (MS) is close to sealing the deal with Skype. The acquisition cost is rumored to be between $7 and $8 Billion.

The last time I heard of such a high value buy from Microsoft it was 2007 and the company was aQuantive. The cost- $6 Billion.

Microsoft acquired this firm for its creative and digital ad agency (Avenue A Razorfish) and adserving platform (Atlas DMT). This saga was of great interest to me as I was with Avenue A Razorfish, though before the acquisition, but was interested in knowing how this would end. Especially knowing that these two firms had completely different cultures, operational philosophies and at some level Atlas would be redundant considering MS already had a ad serving platform of its own, made the story even more interesting to me. I followed the news online and through friends at both MS and Avenue A and the industry.

Of course as one could guess based on Microsoft's history- the integration of aQuantive did not happen smoothly and MS sold Avenue A to WPP and launched its own search service and technology. aQuantives original management left MS within a year or two.

Now, coming to the Skype story- Skype became popular by providing voice and video calling services for free or for cheap to the mainstream consumers- especially in the international calling segment. The interface is simple and easy to use. The quality of voice and videos crisp. With Skype credits users can 'charge' their account and call anywhere in the world to any land-line or mobile number. Users could also forward their calls from their skype numbers to personal phones.

Skype is reasonably well established in the consumer as well as in the small and medium business world. With the acquisition of Skype MS gets this large consumer base and the opportunity to integrate Skype's technology with its existing platforms. For example, MS has a product called Lync which integrates email, IM and voice on to one platform. Skype can play a major role here.

More importantly I see Skype playing a vital role in supporting MS's Windows Phone 7 OS. MS has been struggling to establish itself as a strong player in the mobile segment and Skype could be the answer, providing a little bit of an edge - and MS needs every little bit of the edge it can get.

One way to make this partnership work could be by using Skype on Windows enabled devices. Using Skype consumers could now make free or cheap calls (within and out of their network). While feasible, this comes with its own challenges of dealing with operators. In fact the way I see it, this strategy could be more successful out side of the US, such as in India, where the telecom markets are device driven and not operator (as in the US).

Given the history of MS though it will be interesting to watch if Skype actually makes it out of the "blackhole" once the deal is closed and it goes in for integration with MS's existing products (which is where I see Skype's true value to MS) or like its previous acquisitions Skype too will be consumed, and possibly painfully so, by the giant. Only time will tell.