How Microsoft is monetizing Messenger: Turn it into Skype

How Microsoft is monetizing Messenger: Turn it into Skype

Summary: While Windows Live Messenger was ad-supported, it barely generated any money. Enter the business case and the merging of users, and Microsoft has a potential cash-cow on its hands.

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The death of Windows Live Messenger is nigh -- in another life known as MSN Messenger -- but Microsoft is holding on to its 100-million-plus users by migrating them to Skype

Why? Messenger was dying, its user base was dwindling, Skype is getting stronger by the day, and it's generating millions in revenue. Microsoft had two services on its hands and more than 100 million users to spare, and killing a service without a path or direction to channel those users could -- heaven forbid -- land in the competitor's hands. 

Messenger was making a fraction of Skype's revenue by comparison, and Microsoft wants to start generating its $8.5 billion back that it spent on the Skype purchase in the first place. 

It's all about the money. Sorry, users. You're on the back seat on this.

By shifting its entire base of consumer and small-medium sized business (SMB) users on a single instant messaging and voice platform that's proven to be stable, popular, and on the most part free, Microsoft can open up above all the opportunity for users to exploit the 'freemium' model that Skype offers.

Because... Skype isn't free. It is for certain things -- one of the main reasons why the service so popular -- but under the belly of its free features offers a wealth of services that cost the end user. This guarantees a steady stream of revenue for Microsoft in long-term payments for premium services, like online numbers and business accounts, and the increased user base from former Messenger users only expands that opportunity. 

While at its peak, Windows Live Messenger had more than 300 million users, it fell out of favor with the crowds. It now has "100+ million," according to Microsoft, a drop by two-thirds in the space of three years. Messenger was a sinking ship after the 'death' of Windows Live.

While Messenger was still generating some money through its ad-support, it wasn't generating nearly as much as Skype did. But customers ultimately migrated to private Facebook chat and public Twitter communications, while Microsoft dished out Lync, its enterprise-friendly platform for business clients.

Messenger users were simply left out to pasture.

Skype, on the other hand, currently draws in 40 million online people at peak times. Microsoft snapped it up last year and turned it into a Microsoft division, but while it was ticking away on its own, generating modest sums of revenue, Messenger was sinking into the mud and hemmoraging users.

Microsoft's Entertainment and Devices division was up by $276 million, mostly down to the Skype acquisition. Even if we say Skype brought in a conservative estimate of $200 million, that's still a great deal more than a few banner ads in a software program used by only 100 million people would have done.

But Skype is free. How is it making money? 

Skype-to-Skype calls are free, as are Skype to Facebook and Messenger instant messaging features. What lies underneath is the 'freemium' model of free-to-use but cough up when you want to call overseas, of use the bevy of business features like group video and the like.

Microsoft also has Lync. In a nutshell, Lync is for use for unified communications inside the firewall, while Skype is for connecting those outside the firewall. Without a definitive date offered as yet, Microsoft says that they will deliver Lync-Skype federation "soon."

While Skype is currently reserved for those falling in the consumer, and small-medium sized business (SMB) categories, Lync is reserved for business users in the enterprise. Most will go through their working and playful lives without spending a cent on Skype, but for those who use it for business use can do for a price, a low price at that. 

The more customers Skype gets through the Messenger 'transition,' the more features that can be added of a free-to-premium model. One Microsoft top brass suggested the firm could start charging for additional features, such as video archiving and authentication features, adding more corporate appeal.

It's unlikely that Skype would ever become a wholly premium service -- there would be an uproar -- but bit-by-bit Microsoft can add the features guaranteeing a stable stream of revenue over time.

Topics: Microsoft, Cloud, Collaboration, Windows

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20 comments
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  • and the other reason

    so they only have to update 1 piece of software... not 2.... thought that was obvious?
    danjames2012
    • Not a good reason...

      since, Messenger, like it's stated in the article, was losing customers, and if that kept up, the client-base would have been gone in due time.

      So, the basic reason to migrate those messenger clients, is to preserve them, and to hope that they stay and use the Skype service. Why just allow a huge number of clients to disappear when they could easily be retained with a secondary service which has greater appeal?

      If messenger was slowly going away, via the customers disappearing, the savings would have been the default effect because of no need for maintenance, but, there was a greater appeal to shift them to Skype and keep those customers. If messenger had kept it's success, chances are that, it would have been kept alive, along with Skype. So, it's a no-brainer to keep those clients as Skype customers, rather than losing them all.
      adornoe
      • erm

        How is it not a good reason.... if MS have 20 people earning $50k a year working on messenger and 20 people earning $50k a year working on Skype.... They get rid of messenger they save them selves all that wage straight away.....
        danjames2012
        • erm, doubled...

          It's not a good reason for Microsoft, because, those customers would have been lost anyway, and they're just figuring out a way to keep those 100,000 customers from disappearing altogether.

          The savings that you're talking about are a secondary reason, and not a primary reason, with the primary reason being, saving/keeping those customers on their on-line properties. It's not like they had a choice, with the savings. The choice was made for them, when those people were slowly disappearing from messenger. Messenger was a no-brainer to disappear anyway, and the real saving that Microsoft did, ahead of time, was to save those customers from disappearing altogether.

          Basically, they were going to be saving on messenger going away anyway, and it's a decision which was basically out of their hands. That being the case, it's not a real savings in the sense that, they were preemptive and not reactive and late.
          adornoe
  • the transition it's sucks

    Today if you put msn and the skype and use the option login with msn account we can not keep msn account online on messenger web ou desktop. shame
    francisco.augusto@...
    • Office 365 and Live.com don't place nice with each other either

      The whole MSN/Live.com Account which apears to be converted to a newly minted "Microsoft Account" is key to Windows 8. Unfortunately, their business cloud subscription isn't compatible with Microsoft Account. If you use your own domain for Office 365 and try to use it as a Microsoft Account, you're going to wind up in a bind because the authentication is separate and confuses the hell out of them. Basically, it breaks everything.

      There are many stories on the Office 365 Forums with regards to this issue. Unfortunately there are no solutions.

      Microsoft needs to fix this quickly because trying to use Windows 8 without being able to log onto the Store is like having a car and no roads!
      jasondean
  • A distorted view

    "It's all about the money. Sorry, users. You're on the back seat on this."

    That's a convoluted and frankly unjustified way of interpreting a wise decision in which both Microsoft and users win.
    Tim Acheson
  • How Microsoft is monetizing Messenger: Turn it into Skype

    That's ok because Microsoft is a for profit company and if this is how they can get additional revenue then so be it.
    Loverock Davidson-
  • If you have lots of MSN contacts

    is it going to automatically transfer them to skype or are you going to have to add them one by one?
    I use my skype for business calls abroad and it has worked perfectly, however in between work times (ok I should be working)I have my msn running so i can randomly chat to my friends. So is it suddenly going to add all my friends to my skype mixed in with my business contacts or will i have to have another skype user area, but not be able to have them both open at the same time...
    I may have to relocate my msn friends over to yahoo.. bugger
    eatingacheesepastieforlunch
    • erm

      cant you seperate your skype users in groups?
      danjames2012
  • Messenger, what's that?

    I don't think I've opened Messenger for over a year now. I've had a few minutes only this summer when I installed Windows 8 Release Preview and by signing in with a Microsoft Account automatically logged me in Messenger but besides that nada...

    Messenger went the way of ICQ: out! Today with SMS on phones I don't need another messaging platform, if I can't be reached on my phone, I can't be reached at all and it is intentional!
    lepoete73
  • Skype...msn

    Skymsn

    Before they do this, lets hope they do it right, but I doubt that'll happen. It will be a mess just like all their other product mergers, and will take years to smooth out the bumps, all the while they'll change the name a few more times (just like they have done with msn, or windows live, etc. etc.)
    mrdt
    • I'd also add

      that a company with the resources of Microsoft, their products should be damn near flawless when they release them to the public. But maybe that's their plan to make more money (you know sell half baked products, only to be able to sell new and improved half baked products - got to keep a steady revenue stream).
      mrdt
      • You could say the same thing for any other company that does software or

        hardware, or a combination of both.

        No product, whether new or old or updated, will operate flawlessly. Plus, there will be people who cannot be pleased, no matter how much you try. Then there are those who dislike a company or a person so much, that there is no way to please that person, even if a product or service is close to "perfection".
        adornoe
  • Maybe I'm missing something....

    since I'm neither a Mesenger nor Skype user, but my impression was that messaging was no cost - and Skype has a definite cost. If that's true, just have to wonder how many users will be willing to pay after they are changed over. Latest machine came with Skype preinstalled as crapware, & when I checked it out, what used to be free was no longer available without subscribing, so it went the same way as all the other crapware.
    Willnott
  • Skype isn't as good as something like Viber

    Typically a user installs Skype and forgets about it after a few days. Because he doesn't know the ids of his friends, and his friends doesn't know his id.

    The likes of Viber and WhatsApp have an ingenious directory system that, by default but which can be overcome, uses a person's phone number as his service automatically. As a result, the moment after installation, *everyone* in his phonebook is contactable and he is contactable by everyone in his phonebook.
    kingkong88@...
    • Hmmm... maybe some day, those services will grow up to be like Skype,

      which is what's being discussed here.

      Perhaps Apple can pick them up? Then, they'll be in the big leagues.
      adornoe
  • But Skype Isn't Making Money Either

    I'd say, all they're achieving is consolidating two loss-making operations into one.

    May not mean they'll lose less...
    ldo17
    • Short term "thinkers", like you, never make it in a long-term world,

      and if Microsoft were to "think" the way you do, they would never have been patient enough to come up with successes like XBox and others.

      But, I know that, your only purpose for posting here, is so you can get your troll points and daily attacks against Microsoft posted. Otherwise, you have nothing of value to contribute.
      adornoe
  • Messenger just happens to be better

    For years we have been making transatlantic video calls. At first with Skype - but had lots of quality problems and drops. After switching to Messenger the quality of video and voice improved instantly. We installed HD cameras at both ends. Video is now very impressive.

    Every so often we also do Skype calls - sometimes to people who don't have Messenger or sometimes just to test if Skype has got better since MS bought it. The results are still as plain as the nose on your face (literally). Messenger provides superior video and audio and fewer dropped connections.

    I hope MS moves the Messenger internals into Skype for the benefit of all users.

    Keith
    keith.manning@...