SkypeOut – MicrosoftIn

A joke that’s making the rounds of the Internet goes like “Microsoft buys Skype for $8.5 Billion. Nobody told them you can download it for free.” :-)

Though rhetorical, it hits the point right on its head. It is a matter of common knowledge that the current owners of Skype were very edgy and wanted to sell it off to anybody who could pay up its latest market valuation (around USD 3 Billion). Various analysis of the buyout have explained that Microsoft is looking at the value that Skype shall add when integrated with Outlook, Sharepoint, Office and their other enterprise collaboration tools.

Skype was one of the very few internet services for which I had paid (both for personal as well as official uses). Skype has also generated an innovative economy in which many well known musicians (esp. from Mysore) conduct classes over the internet for students from all over the world and get paid by the hour. SkypeIn was another service which provided an economical way for small cos to get a US number.

Skype is a service that makes real money and contributes to real economy when compared to other much hyped services like Facebook, Twitter – which have been valued at more than 20 times their revenues. So, in my opinion Microsoft have really snapped up a really valuable service that could multiply its revenues several fold.

But is the price right? At USD 8.5 Billion, every analyst worth his salt even in India is saying, that it is too steep a price to pay. Some “analysts” like this one say Microsoft wanted to keep Skype out of Google’s reach. While this one says Google aborted an attempt to acquire Skype many years ago. And some say Skype might get wired into Microsoft products’ DNA and hence provide a fully integrated communication and collaboration tool.

I have a drastically different take on why Microsoft paid a steep price to acquire a supposedly dull technology company like Skype. Also, before that I believe that integrating Skype into Microsoft is going to be anything but easy. Skype is built entirely using open source technologies. Though some of Skype’s communication protocols might be proprietory, most of the network elements use only open source technologies. Over a period of time Skype too has lost its original charm on developers. According to several places on the internet, post-acquistion many of Skype’s technology people might make a quick exit to the nearest startup.

The trickiest part will be migrating the users onto either Microsoft’s Live infrastructure or Facebook’s social infrastructure (Rumours has it that Microsoft may throw Skype at Facebook to thwart Google). Given that most users do not like changing their usernames, access methods and other functions that easily, managing the user database is going to be one thankless job to begin with. Add to that the payments made to Skype by paying customers like myself who want value for our money to be provided in full. Microsoft is going to have its hands full with this acquisition.

Ballmer has reportedly taken a hands-off approach on Skype allowing it to be managed by its current executive team itself. This in my opinion is the correct approach to take by Microsoft and hope they’ll act only as an investor and strategic partner.

Finally, whatever the buyers and sellers involved in this transaction may say and how much ever the analysts may point out to the synergies and potentials of the acquisition, my strong suspicion of the buyout is that it is some kind of a quid pro quo by Microsoft to Silver Lake Partners, Andreessen-Horowitz, Canadian Pension Board and eBay. And along with several other people I also believe that Ballmer doesn’t have the kind of vision to think about Skype as a strategic fit.

Well. Good Luck Skype!!