Another reason Microsoft wants Skype: Advertisers, advertisers, advertisers

Online advertising is one of the big reasons Microsoft has purchased Skype, according to Microsoft and Skype management.
Written by Mary Jo Foley, Senior Contributing Editor

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.

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