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Microsoft and Skype: Steve Ballmer as George Steinbrenner

4 min read

Digital Technology

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This post is by Andy Grossman, a SmartBrief contributing editor covering telecommunication and technology.

Microsoft’s $8.5 billion purchase of Internet-protocol voice carrier Skype Technologies tells a tale of a pending symbiotic relationship under which a desktop-oriented software giant tries to play catch-up after it was caught napping upon the ascent of mobile and other broadband-communication services.

Think of Microsoft CEO Steve Ballmer as the 1980s-era George Steinbrenner trying to win the New York Yankees a pennant with one huge and costly free-agent signing. As any Yankee fan will tell you, many of those acquisitions — how many World Series did Dave Winfield win? — didn’t quite pan out. But most observers see Skype more as Reggie Jackson, the straw that will — in Jackson’s words — stir the Microsoft drink.

In the words of one analyst, Skype and Microsoft will leverage each other equally in the telecom world to create a “rich multimedia tone” that will land within the reach of mobile, fixed-line and fixed-broadband users in the way of voice, video and data services that are tightly integrated with Microsoft’s desktop, gaming and wireless products.

But on the smartphone-application side, some of the post-deal bluster might have overblown how much Microsoft’s struggling mobile platform will gain with this asset. While few observers think wireless played a central role in Microsoft’s thinking, many noted tangential but substantial benefits of marrying Skype’s IP-based services with Windows Phone 7.

The conventional wisdom:

  • Skype’s global brand will provide a lift to Microsoft’s almost invisible mobile operating system in a world in which most see the Apple iPhone, Google Android and Research In Motion BlackBerry as the only options. With Skype’s video-chat apps, Microsoft can compete with Apple’s FaceTime.
  • Microsoft can tightly integrate Skype’s video-conference features — again for businesses and consumers — and introduce other IP-based premium voice, video and data features that help the company catch up to Apple and Google.
  • In the big picture, tying Skype to every other Microsoft platform can revolutionize the communication ecosystem. It might even lead to a carrier-free world tied into a mobile eco-sphere that treats broadband services the way Skype does for voice: a commodity and a means to bring the enterprise and consumer worlds into Microsoft’s universe.

Some analysis discusses how the deal hurts Microsoft’s relationship with wireless carriers because Skype makes them irrelevant in the same way it has contributed to a decline of the landline business.

But while integrating Skype might bring Microsoft into the big league of broadband communication, it might offer only a scant, if any, boost to the company’s mobile hopes. If Microsoft spent all of this money — too much, in the eyes of some analysts — to capture Skype, why would the company limit VoIP service’s value to a weak wireless platform?

“Anything Skype would do for a Windows phone, they would do for other phones,” said Bern Elliot, a Gartner vice president. “You can expect to find a Skype client on a Windows Mobile client, but you can expect the Skype client on Apple and Android operating systems. This is an app that sits on top of mobile operating systems.

“Skype is creating a separate division and leaving a very capable CEO, [Tony Bates,] in charge of that division” Elliot said. “In part, he’s there to ensure this thing keeps going and going.”

In other words, this deal is as much about Skype leveraging Microsoft as vice versa, and it will not make sense for Microsoft to keep the platform to itself.

Furthermore, speculation that the deal represents a major threat to smartphone carriers is misguided. Wireless carriers still must provide essential transport services for a Skype service. It’s actually landline carriers that face the biggest threat from a Skype-Microsoft integration, which will exploit Skype’s IP-based network to bring next-generation triple-play broadband services.