Another reason Microsoft wants Skype: Advertisers, advertisers, advertisers

Another reason Microsoft wants Skype: Advertisers, advertisers, advertisers

Summary: Online advertising is one of the big reasons Microsoft has purchased Skype, according to Microsoft and Skype management.

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Microsoft CEO Steve Ballmer and Skype CEO (and now Microsoft Skype Business Unit President) Tony Bates didn't share any product roadmaps during their press conference explaining the backstory of Microsoft's $8.5 billion acquisition of Skype.

So while Microsoft and its newest communications partner are planning to integrate Skype with Microsoft's Lync, Messenger, Outlook, Hotmail, Xbox Live, Windows Phone and other products, we still have no particulars or dates. (The pair said they would do so closer to when they receive regulatory clearance of the deal.)

However, Ballmer and Bates did attempt to explain why Microsoft bought the VOIP/video conferencing vendor, despite the fact that Microsoft already has a bunch of products that deliver most of the same capabilities.

The Skype brand -- one with the advantage (shared by Google) of having its company name commonly used as a verb -- is one of those reasons. Another is the rapid growth of video content. Skype currently is seeing 40 percent of its traffic coming from video chat, Bates said today. But the one that stood out most to me is something many arm chair quarterbacks haven't mentioned: Advertising.

We already know that online advertising is of huge importance to the Softies. Ballmer said recently that online advertising, currently contributing $3 billion in revenues per year to Microsoft's coffers, is the fastest growing part of Microsoft's business. And Ballmer and his advisers seemingly are seeing potential advertising dollar-signs dancing in their heads with Skype.

In explaining how Microsoft plans to "monetize" Skype, Ballmer mentioned advertising several times during his press conference remarks. Bates mentioned advertising, repeatedly, as well.

"Video itself we think as an overall market for both advertising and for rich communications around collaboration and finding ways to create that engaged user base is going to be one of the fastest-growing areas of the market," Bates told press conference attendees. "We estimate 45 percent growth just in video-based ads over the compound annual growth rate in the next few years."

Skype's current "premium services" (a k a, its paid communication offerings) are another place where advertising could figure in a major way.

In March 2011, Skype announced plans to allow advertising and signed up some big brands -- including GroupOn, Nokia, Universal Pictures, and Visa. The advertising appears in the Home tab of Skype for Windows. Meebo, Ad2One and Stroer Interactive will be selling advertising for Skype, the company announced at that time.

"This move represents the first time that advertising will appear in Skype, giving brands a unique opportunity to be part of the Skype experience, which has enabled millions of people around the world to do things together when they’re apart through voice and video calling, instant messaging, conferencing, and more," said Skype's press release.

I'm wondering how the Microsoft acquisition will alter these plans....

Microsoft has some substantial challenges ahead with Skype, as noted by UBS analyst Brent Thill in a note to clients today. Thill noted that only five percent of Skype's customer base are paying customers (9 million of 170 million connected users). Additionally, Skype's revenue growth has been declining -- it was 45 percent in 2008, 30 percent in 2009 and 20 percent in 2010.

Topics: Microsoft, Collaboration, Social Enterprise

About

Mary Jo has covered the tech industry for 30 years for a variety of publications and Web sites, and is a frequent guest on radio, TV and podcasts, speaking about all things Microsoft-related. She is the author of Microsoft 2.0: How Microsoft plans to stay relevant in the post-Gates era (John Wiley & Sons, 2008).

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27 comments
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  • One huge premium to pay for a declining business. Also the culture clashes

    will start now, followed by all of the problems of converting the backend infrastructure to use Windows server.
    DonnieBoy
    • So pathetic...

      You don't have a life. Your whole existence revolves waiting for the name Microsoft to show up on your screen and then to bash the heck out of the company, no matter what the topic, good or bad or indifferent.

      Try to get a life, or at least visit a psychiatrist.
      adornoe
      • I am not the only wondering about the price tag and the integration

        problems.
        DonnieBoy
      • Shut the f*ck up, a$$hole

        @adornoe@... the teabagging f@ggot.
        blind obedience
      • blind obedience: I see you're back with another handle

        So, what's happened to your "ahh so" and "search & destroy" user ids?

        But, no matter, I see that you're still behaving like the brainless twit that you are.
        adornoe
      • RE: Another reason Microsoft wants Skype: Advertisers, advertisers, advertisers

        @adornoe@...

        Very well said...that's actually true...:-)
        Janmejays
      • RE: Another reason Microsoft wants Skype: Advertisers, advertisers, advertisers

        @adornoe@... The correct expression money, money, money instead of advertisers, advertisers, advertisers.<br><a href="http://www.ofertareonline.ro/ferestre-termopan.html">Termopan</a>
        termopane
    • This is exactly why I think was not worth the 8 billion

      @DonnieBoy Microsoft really overpaid for this. Hopefully Microsoft's own key brands along with the key technologies in Skype will help make that money plus more. Microsoft should have said at the negotiating table, shutup, we are paying US $1 million for this mishandled crap, take it or leave it.

      I think Microsoft's weak spot is negotiating good deal in the post Gates era. Look at what they were willing to pay for Yahoo! back in 2008, that was a ridiculous amount of money for what at the time and still is seen as a batter bruised Internet Company.
      Mr. Dee
      • RE: Another reason Microsoft wants Skype: Advertisers, advertisers, advertisers

        @Mr. Dee
        My question is how is Microsoft going to address the redundancy between Messenger and Skype they are direct competitors .Is MS going to ditch the Messenger brand? But Messenger has more users than skype . (???)
        Seriously 8 Billion for Skype is way.. too much. MS has the technology what they are actually paying is for the brand name.
        Lets hope they have something major planned for it ;not just intergrating it to Xbox ,Windows phone.
        g@...
    • RE: Another reason Microsoft wants Skype: Advertisers, advertisers, advertisers

      @DonnieBoy the culture desn't clash as much as you would think. Today's MS for the common worker is much more open than it was in a traditional sense. It's not Google "grow some weed o your desk" open, but it's not IBM either.
      frankwick
  • My previous comment was reported as spam

    This is exactly why I think was not worth the 8 billion

    Microsoft really overpaid for this. Hopefully Microsoft's own key brands along with the key technologies in Skype will help make that money plus more. Microsoft should have said at the negotiating table, shutup, we are paying US $1 million for this mishandled crap, take it or leave it. <br><br>I think Microsoft's weak spot is negotiating good deal in the post Gates era. Look at what they were willing to pay for Yahoo! back in 2008, that was a ridiculous amount of money for what at the time and still is seen as a batter bruised Internet Company.
    Mr. Dee
    • You must have edited it

      @Mr. Dee
      Your previous post is still visible and is unflagged.
      John L. Ries
    • RE: Another reason Microsoft wants Skype: Advertisers, advertisers, advertisers

      @Mr. Dee

      FWIW, I see the post as flagged. Yes its flagged, but I can still see it.

      Hans
      Looks Confused
    • RE: Another reason Microsoft wants Skype: Advertisers, advertisers, advertisers

      @Mr. Dee more money than brains, typical of corporate types.
      CyberPunkNews
  • Microsoft doesn't plan to make money from Skype

    The goal was just to keep it out of the hands of Google.
    trentreviso
    • RE: Another reason Microsoft wants Skype: Advertisers, advertisers, advertisers

      @trentreviso I concur... and then we have the patents, if any viable. A non-platform specific alternative to Skype is now important. //S
      scallag
    • RE: Another reason Microsoft wants Skype: Advertisers, advertisers, advertisers

      @trentreviso
      Maybe. Historically, Microsoft could have used anti trust law to prevent Google from buying Skype. Maybe they didn't consider that to be a safe bet.

      Regards,

      Hans
      Looks Confused
  • RE: Another reason Microsoft wants Skype: Advertisers, advertisers, advertisers

    They should be able to make their money back on Skype considering its user base. Now they not only have just Windows users, but Mac and linux users as well. More people to put advertisements in front of.
    LoverockDavidson
    • RE: Another reason Microsoft wants Skype: Advertisers, advertisers, advertisers

      @LoverockDavidson
      To make 8.5 Billion dollars in advertising??? Yeah, in a hundred years...
      prof123
    • RE: Another reason Microsoft wants Skype: Advertisers, advertisers, advertisers

      @LoverockDavidson <br>SKYPE will be KINNED ...
      http://pantestmb.blogspot.com/2011/05/microsoft-skype-home-premium-edition.html
      auntaru