Microsoft buys into global telco dreams

Microsoft buys into global telco dreams

Summary: It's always interesting to watch the collective internet's response to moves by Microsoft, which are almost unanimously viewed with something bordering on suspicion and contempt. Yet, there seems to be very little consideration of the fact that Microsoft's US$8.5 billion has shrewdly turned the company into what is effectively the world's biggest global telecoms operator — and given it an express pass to use that operator to unify its massively popular desktop computing, enterprise and gaming environments with its nascent mobile effort.

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TOPICS: Microsoft
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It's always interesting to watch the collective internet's response to moves by Microsoft, which are almost unanimously viewed with something bordering on suspicion and contempt. Yet, there seems to be very little consideration of the fact that Microsoft's US$8.5 billion has shrewdly turned the company into what is effectively the world's biggest global telecoms operator — and given it an express pass to use that operator to unify its massively popular desktop computing, enterprise and gaming environments with its nascent mobile effort.

The success of Skype as one of the internet's genre-defining applications is without refute; despite the marginal success of competing efforts like Google Talk and Microsoft's own Windows Messenger, Skype has captured the mindshare of a generation as the way to communicate with other people over the internet using voice, video and even screen-sharing. It's an established, cross-platform, relatively polished application that is only ever let down by its reliance on an internet that isn't always kind to time-dependent communications.


Skype could be the linchpin in Microsoft's efforts to link the lounge room, business, mobile and internet worlds. (Microsoft, Skype and David Braue/ZDNet Australia)

Obvious synergies between Skype and Microsoft's own messaging platforms — and, in particular, its new enterprise-focused Lync unified communications platform — are only the beginning of the value that Skype brings to the company. By baking a communications platform that people already know, trust and use into its Xbox 360, for example, Microsoft has opened up a completely new channel for communications that will complement existing voice-chat with an added element of communication between gamers.

Using Skype's online video will let you not only taunt your distant opponents, but watch their grimaces of frustration as you frag them to kingdom come, again and again, while making unkind gestures with your tongue and fingers. After all, each of the bazillion Xboxes that now have a camera and microphone-equipped Kinect device is now set to become a ready-made Skype conferencing station. Enter someone's Xbox Live! ID and you'll be able to request a voice or video session or, perhaps, just broadcast a message to them as a Skype chat. If you ever needed an easier way to call the kids to dinner, this could well be it.

The deal will improve portability between Xbox Live!, Windows Live! and Skype credentials, which are bound to undergo a rationalisation once smooth interoperability has been established. It will also boost Microsoft's credentials with consumer-electronics giants like Panasonic and Samsung, which have built-in Skype compatibility in their TV sets, and long ago decided that the platform was the most appropriate to use as a TV-to-anything communications platform, choosing it over Microsoft's own Messenger offerings. If Microsoft ever needed a way to better extend its reach into the lounge room and throughout the mythical "connected home", it just found one.

Microsoft's purchase of Skype could also mean good things for its Windows Phone 7 platform, which has been struggling for a competitive differentiator and might just have found it. Other smartphones already support Skype as an optional add-on, of course, but by owning its communications underbelly, Microsoft can integrate Skype throughout its mobile and desktop platforms with an unmatched level of interoperability.

Microsoft's ownership of Skype will put it in competition with the very same telcos that it has been working with to build credentials for Windows Phone 7.

Of course, this whole proposition could backfire horribly; Microsoft's ownership of Skype will put it in competition with the very same telcos that it has been working with to build credentials for Windows Phone 7. Telstra faced a similar situation with Apple's iPhone, which customers were demanding, but which nicely circumvented Telstra's own online content properties for Apple's.

In fact, Skype's entire business model is based on circumventing telcos. And no matter how much Microsoft may want to put Skype everywhere, telcos are going to struggle to justify actively promoting a tier-two smartphone platform that will undercut their hugely profitable voice-based business models. Instant-messenger apps are one thing — they generally can't make calls to real phones — but Skype is a complete communications service that not only lets paying customers make calls to real phones, but also supports voicemail, call holding, call forwarding, conference calling and so on. You know, like a real telco.

To put it another way: put a fully-integrated Skype on your Xbox, and it becomes your new home phone. Connect it to an NBN or other suitably fast broadband service and you won't need a landline at all.

Microsoft has already turned the console into a Foxtel set-top box, but the ease with which the Xbox can become your home's communication centre is simply mind-blowing. Can it be long before Microsoft supports any of the dozens of Skype-compatible phone handsets and allows them to be plugged straight into the back of the unit?

Telcos may grudgingly accept smartphone apps that allow use of Skype to call any landline in Australia for around four cents per minute — heck, 3 even tried an if-you-can't-beat-'em-join-'em push to promote Skype to its users — but they won't want to give away the farm. They might not be able to stop users from buying Xboxes, but given WP7's low market share, they may find it easier to turn their backs on a platform that should by all rights be promoting Skype integration as a key differentiator. Microsoft will be walking a tightrope here, and at this point it could go either way.

There is always the chance that Microsoft could blow its chances by trying to aim too high, too far or too low for Skype all at once, as it is wont to do. Skype users love what it offers, and Microsoft needs to be careful to be adding features rather than simply replacing or changing them to suit the Microsoft way. The company's best approach in the short-term is to keep Skype intact, but to capitalise upon the tremendous opportunities that its brand and reach provide.

Speaking of which, arguments from the "it's too expensive" crowd totally ignore the tremendous commercial potential of the deal. Microsoft can not only bridge the gaps between its products and those of others, but it just bought 170 million customers and a heavily-utilised app providing a direct sales channel through which it can push all of its new initiatives, bundles and specials (think "renew your XBox Gold membership and get 10 free hours of phone calls per month" or "watch three ads on your Xbox and we'll give you a free 20-minute call to anywhere in the world").

Put a fully-integrated Skype on your Xbox, and it becomes your new home phone. Connect it to an NBN or other suitably fast broadband service and you won't need a landline at all.

At a cost of around $50 per customer (as little as $13 per customer if you go by some estimates that Skype in fact has 600 million customers), Microsoft has bought itself a massive exposure within the user community of a genre-defining communications platform that makes it a major player in global telecommunications.

Forget early efforts like MSN, which Microsoft originally pitched as an alternate internet of sorts — Skype lets Microsoft skip all of that infrastructure and Skype its way in front of users in completely new ways. Even if the company does nothing but keep running Skype as is, it will continue to benefit from a strong revenue base and ferociously loyal customers that straddle both consumer and business markets. But if it makes smart decisions that build on Skype's realised and unrealised potential as a global telecommunications disruptor — well, the Skype's the limit for a company that has become one of the world's biggest telcos overnight.

What do you think? Is Microsoft's buy a shrewd win, or a disaster for Skype — or both?

Topic: Microsoft

About

Australia’s first-world economy relies on first-rate IT and telecommunications innovation. David Braue, an award-winning IT journalist and former Macworld editor, covers its challenges, successes and lessons learned as it uses ICT to assert its leadership in the developing Asia-Pacific region – and strengthen its reputation on the world stage.

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4 comments
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  • When i first read about the Skype purchase for such a large amount of $ I didn't see the merit in it but your article explained it brilliantly.

    Has the giant awoken?
    pandemonium-73b90
  • I'm still unconvinced that this is a good deal for MS.

    MS already had similar tech to Skype, so it seems they've basically bought a user base for $8.5b, but a user base that is used to "free". For all the hype about Skype, they don't really generate that much actual profit, with most of their future plans before this deal being alternate ways of monetising the user base (http://techcrunch.com/2010/08/09/skype-ipo/). EBay admitted it spent too much on Skype at $3.5b, but then that was always an odd match up and MS has much more alignment with Skype than EBay ever could have.

    But throwing money at things doesn't necessarily mean MS will succeed, when they get stuck on an idea it takes a while for them to get it out of their system (they had a crack at Massively Multiplayer Online Games for a while and kept throwing a lot of money at it till they decided it just wasn't going to work for them and gave up...it was so bad for them that they almost backed out of PC gaming as well, but realised the mistake they were making with that and started pushing the whole Games for Windows thing more).

    this deal kinda puts the cost of the NBN in perspective though, for 3-4 times more than they paid for Skype, MS could have had their very own NBN :o)
    Tinman_au
    • Microsoft does have a patchy record when it comes to acquisitions and it's always possible they will **** this deal up by overengineering the life out of it and failing to capitalise upon its natural advantages. Let's hope not, though.

      Given the Xbox's potential as a multi-service terminal for pay-TV, phone, and general communications, perhaps MS should be negotiating with NBN Co to make it the de facto NBN interface for every home in Australia? Skype could become our new nationwide carrier, and I bet nobody would be protesting the NBN then :-P
      braue
  • Idiots. Dont they know you can get Skype for FREE?
    Homesick Phil