Microsoft, Skype and the acquisition integration paradox

Microsoft, Skype and the acquisition integration paradox

Summary: A brief survey of acquisitions indicates that integration appears to be the way to go. What does that mean about the line Microsoft is walking with the Skype acquisition?

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TOPICS: Cloud
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Microsoft paid $8.5 billion for Skype and is trying to walk a line between leaving the Internet communications service independent while integrating with its vast array of products.

It's one tough line to walk. The New York Times details Microsoft's integration of Skype so far and the software giant has erred on the side of independence. Skype is developing software for Android, iOS and other services as usual. Ironically, Skype is having issues with Windows Phone.

Borg ships: Best way to integrate acquisitions? Credit: CBS

Borg ships: Best way to integrate acquisitions? Credit: CBS

You see where Microsoft wants to go. Skype for Xbox with cool features. Integration with Windows 8, Lync, Windows Phone and Office can't be too far behind.

The challenge for Microsoft is that it has to preserve what makes Skype great while getting bang for its buck. Microsoft isn't alone with its acquisition and integration paradox. Given the acquisition-happy tech sector these integrations are a huge deal for the vendor as well as technology buyer.

A brief survey of acquisitions indicates that integration appears to be the way to go. Where things get tricky is Web services that have lots of competition and users that aren't locked in.

Consider:

IBM has acquired a bevy of companies and integration rules. The move is simple for Big Blue. Buy a company with products that fill gaps, integrate them quickly and move on. IBM has a sweet spot for its acquisitions---typically companies that are smaller with undisclosed price tags---that offer technologies in Big Blue's hot spots: Cloud, analytics and commerce. IBM plans to spend $20 billion on acquisitions between 2010 and 2015.

Mark Loughridge, CFO of IBM, recently outlined the company's acquisition approach at a JP Morgan investment conference. Loughridge was asked about how IBM picks its targets. He said:

Number one, it's going to be based on the internal strategies of our business. Number two, it's going to be based on our plan for integration over a period of time and introduction to new products, because the key element of that acquisition profile is how it links to our organic investments. These are not just bolt-on acquisitions, these are acquisitions that integrate into those key investment themes.

So if you looked at business analytics as an example, I mean we spent $16 billion, $16 billion since 2005 on business analytics. Now is that just a broad brush, anything that applies to business analytics? No. Six of those key acquisitions were on smarter commerce within that business analytics framework, so they are very well-positioned themes.

If you look at our base strategy in this, our preferred kind of magnitude is in the range of $200 million to $1.5 billion, so we are not looking at big acquisitions nor do we want to communicate that we are looking at big acquisitions. What we found to be more -- the best contribution are acquisitions in that kind of a ballpark that are intellectual property, highly scalable, aligned with a solution that we can manage through 170 countries in something denominated in months then rapidly accelerate it.

We ran an analytical model, eating our own cooking, with research to analyze all of those acquisitions we have done since 2000. So we have done 136 or $36 billion; let me tell you, when you analyze that data you can learn a lot.

We learned content so we can now send those deployment teams out to do due diligence and map the integration. Though we will have a check list of 500 things that you have to manage through we know the key five elements that we have to ace to generate the synergies in that. That gives a big advantage.

Dell's approach has been to add smaller companies---also below that $1.5 billion mark in valuation---and incubate and invest in them until they become units. Boomi is an example. Dell is now working Boomi through its cloud channel. Dell is also buying its way into software, picks up acquisitions almost monthly and is rumored to be hot for Quest Software. The race for Dell is obvious: Grow software to diversify from PCs. Dell integrates somewhat, but it's hardly the Borg from Star Trek.

Apple is more like the Borg. It acquires companies, erases their identities and integrates them into the obviously stronger brand. Good luck finding brand remnants from an acquired company after a year. PA Semiconductor who?

Oracle's approach to its hundreds of acquisitions has been to absorb and integrate. When an acquired company has a lucrative user base, Oracle will choose to support old software and collect the maintenance. Oracle will then integrate roadmaps going forward. Examples of this approach are PeopleSoft and Siebel, two product lines that are supported, but ultimate integrate via Fusion applications. In the cloud, Oracle is also integrating. Notice how the acquisition of RightNow has morphed into an Oracle customer experience pitch when combined with other assets such as Art Technology Group. Sun as a brand is out. Exadata is in.

SAP has acquired and integrated a bevy of companies too---BusinessObjects among the largest---but plans to leave its cloud acquisitions largely independent. SuccessFactors and Ariba will be connected to SAP, but also serve as separate product lines. SAP bought its way into the cloud and wants to keep customers.

The wild card in the integration paradox will be Google and Motorola. Motorola is charged with creating great hardware and software integration. Google has also promised a Motorola firewall so it doesn't compete with partners. Google will also use the Motorola logo. In other words, Google is keeping Motorola as a separate entity in many respects.

Those aforementioned blueprints, however, don't give Microsoft a lot of guidance. Given Microsoft's heritage of trying to integrate everything into Windows, it has to err on the side of keeping Skype independent. What's unclear is whether that approach will work with Skype. Does Microsoft go for the return on investment---integration so Windows looks better to users---or keep users with a more independent Skype? For now, Microsoft is going with the latter since it has to go cross platform. Time will tell if that's the best move.

Topic: Cloud

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  • This is really interesting.

    I'm glad you made the point about web services; that's really the thing with MSFT-Skype -- Skype needs to play well for non-MSFT customers, in fact it has to, because it's a multipoint comms platform.

    I do think it's interesting that Apple never sees the need to play with anyone else -- maps, music, whatever it is -- they take it all. It clearly estimates that the competitive advantage wins out over any incremental revenue from selling to other customers.

    The question is, how does this speak to Skype? Is the same dynamic at play here?
    andrew.nusca
    • About Apple and External Dependencies

      Search and Maps (to iOS 6, probably) mean never isn't never.

      One of the larger knocks against the Skype acquisition was that Skype's revenues didn't justify the price. Some speculated that Microsoft would try to find a great business model and run into the same problems if this was an managed as a product. I said in these talk backs that Microsoft should have had the talent to recreate Skype and it should have cost less than 8.5 billion.

      So far, we are seeing Microsoft treat skyping as a cost center through which to bring value to its platforms. Clearly, the XBox is being expanded out of a role as a primarily games device. Building in skyping transforms it into the role that pcs play as communication devices.

      There are four reasons to acquire a company (as opposed to joint venture or contracted out-sourcing): one wants to sell the products, one wants to be sure that no one else can sell the products, one wants the talent and tech, one wants to be sure that no one else can get the tech or talent.

      Oops, I keep forgetting it's this century, so when I say tech, please include patents, though patents corrode innovation.
      DannyO_0x98
    • @andrew.nusca, they are broadening their portfolio

      to maintain their business of course, but given the lack of real creativity at Microsoft, which I believe is a crucial thing at their level of business, they will slowly die much like Dell.
      Mikael_z
  • Microsoft could do the same thing

    They did with "Halo". Stop it's use everywhere else, and say "Pay us to use it. That will be $199, for all you Evil Linux, and Mac users." As they would have to purchase a retail license for Windows to keep using Skype.
    Jumpin Jack Flash
    • Halo? What a stretch, but you knew that already.

      How come no complaints from you about Apple doing the same thing? Or Google doing the same thing? "No iTunes on WP7 or Android. You have to buy our iPhone for $199 you evil Evil Windows and Linux users!"

      With you it's always when MS does it, it's bad. When everybody else does it, there's nothing wrong with it.

      MS won't discontinue Skype, and nothing in the article even suggest that.
      William Farrel
      • Toddbottom3

        Toddytroll, Stephen B, William Farrel, NonZealot, etc. What ever other names you're trolling on here under. Does Microsoft pay you to actually work, or just astrotruf all day?

        ""No iTunes on WP7 or Android. You have to buy our iPhone for $199 you evil Evil Windows and Linux users!""
        You know that's an outright lie. you do not need to use iTunes for WP7, as it has Zoon built in. And after years of you saying iTunes is such a load of crap, why would you want to install it? Oh wait, you bought a Macbook Pro just to delete OS X, and Install Vista, lol, talk about a fool!

        "With you it's always when MS does it, it's bad. When everybody else does it, there's nothing wrong with it."
        Which bring a striking difference from your attitude of: With you it's always when Apple does it, it's bad. When Microsoft does it, there's nothing wrong with it. And don't even say that the Microsoft FanBoy Miller didn't bring up the subject, after all he's a member of the invite only Microsoft Mobius Mobile evangelist group. I know it's beem brought up, as several posters have provided links to articles, only to have their posts "disappear". Miller cannot let the truth get out there, or he might lose his "MVP" Status
        Jumpin Jack Flash
      • No iTunes on WP7 or Android

        That's actually a good thing... iTunes is the worst evil ever invented...

        I installed it once on my Windows PC and would never do that error again... got Quicktime and Safari installed without me ever being asked for (I know they changed but too late for me... and I don't even have an iGadget to sync so...)
        lepoete73
      • lepoete73

        It could be worse. I can't tell you how many times an Upgrade to Office installs unwanted Microsoft crap-ware, on OS X. It then sets the default behavior to start at login. There's nothing worse that installing a word processor, only to be hijacked into installing Stupid Windows messenger, or "Live messenger"? Then I get the inevitable phone call, "Hey John, what is this "Live messenger", why is it there when I log in, and why in hell, is it trying to copy all of my contacts."
        Then I have tell them to go to Applications/Microsoft Office and delete the Windows messenger Bull poop. As of Office 2011 Microsoft still engaged in these stealth crapware installs. There is no reason of an Office suite to install a crappy messenger application.
        Jumpin Jack Flash
      • @lepoete73, worse than Windows?

        You've after all have had to put up with both viruses and an inconsistent platform. Just to put things in perspective.
        Mikael_z
      • Apple != Microsoft

        Because many don't understand that Apple does the whole product line by them self. Microsoft in other hand doesn't but sells hardware manufacturers (OEM's) the software what is needed.

        Microsoft fans are so blinded about the whole situation what Microsoft have done that they don't even understand the basics.

        When IBM designed and build PC at 1981 and chose Microsoft to license them the operating system for it, thinking they can control PC markets by keeping BIOS proprietary and under strict licensing, they could so something else than what Apple did with their own personal computer line from the beginning with LISA, Apple I and Apple II by conquering personal computer markets with a PC.

        IBM did it, they owned the personal computer markets, they got almost over 90% market share with a PC. Only because IBM understood that they need other personal computer manufactures to make PC-components for IBM clients. So every PC came with a blueprints and specs of PC (expect BIOS code) and everyone could make with license a PC-compatible hardware and software. But then they lost control of PC because Compaq reverse engineered BIOS and PC-clones became and for compatibility, PC-DOS was needed and because Microsoft had rights to license PC-DOS operating system for other personal computer manufacturers with their own name (MS-DOS), PC-clone manufacturers licensed MS-DOS and rest is history. Microsoft got control of the personal computer markets because it sold their operating system to every PC and operating system was at that time even more important than today because there were no software platforms between OS and programs but programs were running directly by operating system.

        Then came browser was and Java what were serious threat to Microsoft because if people could write programs or services to any personal computer no matter what operating system is running in them, they would be out of business. So Microsoft went and used EEE tactics and FUD to hold their market position.

        And all the time, Apple staid away from PC markets. They tried to make same thing as IBM after Jobs was out of the company by licensing System OS to Mac-compatibles. It failed. And when Jobs was hired back, it first tasks was to stop Mac-compatibles and it gathered whole company back to one company and one brand and one product catalog.

        Apple can do what they want, they do everything in house. They don't work like Microsoft. They don't try to control others. They let the others to do what they want. Just like at personal computer markets, Apple has hold own personal computer line up, Macintosh what had nothing to do with a PC.

        There are huge difference if company A builds few software and sells them to third parties what then compete on markets by selling them to customers, to company B what builds everything and sells them directly to customers.

        Lets take a analogy.
        Microsoft is like a oil company what manufacturers different products from oil but most important is gasoline what it then sells to gas stations.
        Microsoft does not manufacture cars or does not even own gas stations.

        Nearly all cars needs gas to work and that is the #1 why Microsoft is biggest.

        Then in other hand, Apple is oil company what manufactures diesel. But does not sell it to anyone else. Apple has own gas stations where you can get diesel and own Apple cars what use diesel. No other car manufacturer can make diesel engines as they don't have license so they cant fill their tanks in Apple stations.

        Apple can do what ever they want with their stations and diesel engine cars as it owns whole production line.

        Microsoft, it doesn't own stations, cars or anything than gasoline and still it controls all of them. And Microsoft fights as hard it can to keep electronic cars out of markets and diesel cars too expensive to buy for most people.

        So even if you choose different brand gasoline car, you end up being locked in to Microsoft directly or indirectly but you have nothing to do with Apple at that time. If you jump from gasoline to diesel, you work directly with Apple and only with an Apple.
        Fri13
      • Good; we need some balance here!

        @Farrel

        Because with [b]you[/b] it's always when MS does it, it's great. When anybody else does it, it is unacceptable.
        rahbm
      • @Mikael_z

        Inconsistent platform? Maybe we're more attacked by malware, but today on Windows 7 I can still run most of Windows 95 programs, try to run a Mac program from 1995 on today's Mac, the last remnant of backward compatibility was removed from the latest OSX (Rosetta).

        And from Windows 95 to Windows 7 (though that seems to be changing quite a bit with Windows 8) the interface is the same with just a bit of cosmetic changes (I really don't understand people who says that it changed dramatically).

        In the end I think Windows is more consistent than Mac or Linux!
        lepoete73
      • Shirley you can't be serious!

        @lepoete73: [i]"...iTunes is the worst evil ever invented..."[/i]

        I do truly hope that you don't REALLY believe that!
        Worse than the Inquisition? Worse than the Crusades? Worse than Pol Pot?

        Please don't let your irrational hatred of Apple distort your view of the world too much. BTW, if you installed QuickTime and Safari by accident, that is not Apple's fault; you [i]could[/i] have tried reading the options!
        rahbm
    • Jumpin Jack Flash Haz Issues

      This guy is on every Microsoft related thread - it's incomprehensible that YOU have nothing better to do. Who pays you to troll Microsoft articles or are you a former Netscape employee? Get outside, enjoy the day.
      drivellc
      • Just like Will Farrel, toddbottom3, Loverock, John Zern, tonymcs et al

        Who pays all those people to troll on behalf of Microsoft?
        There are so many posts from them that they cannot possibly hold down a normal day job as well - they spend all their waking hours talking up MS products and talking down anything else.
        rahbm
      • LOOK EVERYONE!!!#@!#!! HE MENTIONS ME!!!!

        rahbm mentions me!! YAY!! My popularity goes up by +1
        Loverock Davidson-
  • @lepoete73

    There's nothing stealth about installing Office 2011. Just click "customize" from the installer and uncheck the items you don't want. It's not "stealth" as you seem to imply. Try to install iTunes on Windows and see how much crap Apple tries to install as well.
    KevinN206
    • It is okay for you to have an opinion . . .

      . . . and to be critical, but do try to retaim some perspective. If a person installs iTunes they get a CHOICE of only two other programs - Quicktime and Safari. That's it! You make it sound like a "hundred" unwanted and uncontrolled programs will be installed.
      Wakemewhentrollsgone
      • The trolls don't consider it an "opinion"

        In their distorted little world it is a "fact" that Microsoft is good and makes perfect products, and any competing products are total rubbish, and any competing vendor is the spawn of the devil.

        Don't bother trying to introduce any reality or facts, they are simply not interested. Sad, isn't it?
        rahbm
      • @rahbm-Completely the opposite is true. And you know it full well.

        Hence you have used the old "best defence is a strong offense" tactic on this one and it simply will never make the grade.

        If anyone, and I do mean anyone ever claims perfection of product with all else being rubbish, Apple fanatics wrote the book on it, distributed the book, preached the book, and come close to threatening to kill anyone who disagrees with the book in many cases.

        And here is the proof.

        You say:
        "Don't bother trying to introduce any reality or facts, they are simply not interested. Sad, isn't it? ."

        Well, the reality, and the facts are, as I have just checked right now with my very own eyes, once you go to install iTunes, you also get the marvelous Apple Software updater, (software itself) as well as at least offers of Safari and Quicktime ready to be down loaded, also typically either right then and there, or on an update cycle you will also get the iCloud Control Panel jammed in your face as a kind offer.

        Lets also be real and factual about the real facts that iTunes, particularly on Windows has long been known to play less then nice at times.

        So smart alec, yes, lets be real and factual and I'm afraid as usual the real facts start with the Apple fanatic not wanting to be real and factual but instead argue about the real facts.
        Cayble