Will Skype Save Microsoft?

Like most of you, I was bummed when I heard the news that Microsoft was buying Skype. I always have a sinking feeling in the pit of my stomach when a beloved tool/brand is swallowed by Microsoft. (Or even a person—remember Ray Ozzie? He was a rock star before he joined MS! I’m glad he’s no longer there.) I wrote off Microsoft as strategically relevant years ago. Loyal readers will notice that we rarely analyze Microsoft’s moves. Most of our clients just aren’t that interested either.

In the enterprise, MS software is a necessary evil. The MS Office franchise/lock-in has been remarkably successful for almost two decades. Enterprise IT execs have to take Microsoft’s enterprise strategy into account—as they do the strategies of Oracle and SAP—and of HP and IBM. But there’s no innovation involved. Just evolution.

Most of MS’s interesting innovations, IMHO, have been in the consumer gaming area—Xbox and Kinect—for example. In fact, it’s in the consumer world where Microsoft’s brand is actually popular, rather than tolerated.

Microsoft HAS to “Own” a Large Share of Mobile/Wireless Interactions
Finally, there’s Microsoft’s more current public strategic struggle to become a major player in the mobile/wireless field. Now that the majority of information consumption and interaction are taking place on mobile devices, Microsoft can’t afford NOT to be a major platform player in the mobile/wireless world. Microsoft has invested years in mobile OS skirmishes and attempts to woo handset suppliers and telcos alike to a MS-centric mobile ecosystem. Now the company is taking a more heavy-handed and direct approach: buying its way in. First, by mounting a coup at Nokia. Second, by injecting money and support into RIM in exchange for the Bing search franchise. And, now, the real land grab: buying Skype. Notice that Microsoft’s current strategy doesn’t presume that Microsoft owns the mobile OS. It’s playing higher up the stack in the Internet services space (search and real-time interaction).

Why Skype?
Skype is a really useful tool because it’s not tied to any “platform” — you can access it anywhere there’s Internet reach and/or, by paying more, reach people with “regular” phones or mobile phones. Professionally, I have used Skype for audio and video interviews, for international consulting projects, and for teaching remote courses. Personally, I have used it just to stay in touch with friends and colleagues. It’s not hard to install or use on any platform on which I’ve tried it. That’s what makes it easy. The fact that Skype offers “free” long distance and international calls and video-conferencing via the Internet has always seemed to me to be a perk of living in the Internet age. I was puzzled when Skype sold out to eBay and relieved when they went back out on their own. I used to wonder about their business model, but decided long ago that offering a free service you can upgrade to a higher level of “professional” quality is a really seductive and winning model—particularly so when your customer base is in the 100s of millions, and the costs of your infrastructure are largely born by the distributed investment model of the Internet itself: each of us invests in deploying computers and bandwidth to meet our own needs—which adds to the common pool of networked resources.

Can Skype Become the Tool for Microsoft’s Mobile Imperialism?
Steve Ballmer’s plan is for Skype—a much-loved and useful brand—to lead Microsoft’s imperialistic take-over of mobile platforms. Skype is a seductive and innocuous application that consumers welcome onto their mobile devices (as long as it’s free to do so). They will want it on Android phones, iPhones, and other mobile OS’s—including, but not limited to, Microsoft’s.

I doubt that Microsoft will sully the Skype brand by adding advertising overhead onto free Skype. That would cause millions of satisfied users to become dissatisfied users. There’s a lot more at stake for Microsoft than near-term ad revenues.

Having given up on owning the mobile operating system (for now), Microsoft wants to own mobile internet communications and capture a strong foothold in mobile search.

Comments

[Patty Seybold]

Smack,

Great comments!!! thx! (Can't say I disagree with your conclusions) :)

Patty

[Smack MacDougal]

Skype is the phone company for people with no money.

The only people using Skype are those calling home to their no-money relatives in far away lands and those who need Internet access through the public library.

No one with a data plan and a cell phone uses Skype. No one who can pay for all-you-can-eat toll calling uses Skype.

Wireless carriers lack any want to support Skype as Skype cuts into revenues.

Desperately, Microsoft is trying to convince wireless carriers to support phones made by others that run a Microsoft operating system.

Microsoft still see themselves as a seller of personal seat licenses for software with the operating system as the chief focus.

Xbox 360 and Zune have been money losers.

Microsoft needs to spin off their consumer products (Xbox, etc) and exit the cell phone OS business as their execs do not get at all any business except selling personal seat licenses to corporate America. Instead, Microsoft execs should focus on acquisition of business software and engineering software companies.

The days of owning the desktop in the home are coming to an end. Tablets shall replace desktops and laptops for home use. Integration of tablets as wireless remotes for set-top boxes with display on flat screen TVs is coming.

Next-gen tablets shall have smart phones plug right into them.

Microsoft execs are clueless.

[Patty Seybold]

I believe that Microsoft's current innovations occur in its gaming division.

[Shai]

Saying Microsoft is not innovative is like saying Toyota has no innovative skill sets.

Sure, neither are in the game for their disruptive innovations, but both have had a very long line of incremental innovations that see them near the top of their respective markets.