Microsoft's Acquiring Skype: 3 Reasons Why

This post has been updated (as noted) with additional information learned after posting.

Skype lovers might be a little unhappy today: Microsoft is gobbling up the popular voice and video chat service. It is not yet clear whether or not this will be a good or bad thing for current Skype users. But the $8.5 billion acquisition might seem a curious one for Microsoft. What does a company best-known for its operating system want with online communications technology?

Business Videoconferencing Capability

The biggest synergy for this deal could be through Microsoft's Office suite. With a little additional development, Microsoft could now quickly and easily roll out a great videoconferencing experience. They could bundle something like a "Microsoft Meeting" in their Office Professional suite. Any companies, no matter how large or small, could quickly and easily utilize videoconferencing across the world, while referring to Microsoft PowerPoint presentations, Excel spreadsheets, or Word documents.

There are some players in this field already like Cisco's WebEx. But given the prominence of Microsoft's Office, if bundled, the new capability should compete quite nicely.

Update: Except that Microsoft already has such a product ("LiveMeeting")! So perhaps the hope here is that Skype's global footprint and infrastructure could strengthen its position in this market.

Xbox

Another use could be through Microsoft's gaming system Xbox. The idea here would be something like face-to-face gaming. The excitement here might be subdued, however.

Do gamers really care about seeing one another face-to-face? Perhaps. But the culture of gaming is identifying as one's avatar, isn't it? It's hard to know whether gamers would really be all that excited to see the guy with potato chip crumbs on his chest, sitting in his boxers on his sofa furiously fingering his controller. Perhaps, though, there is some satisfaction in seeing the look on your opponents face when you defeat him/her?

But even if the concept does take off, is it really worth billions of dollars to acquire this capability from Skype? Couldn't Microsoft just put a few dozen programmers in a room for a few months and create video chat functionality for Xbox from scratch? Xbox wasn't likely the biggest motivating factor for the acquisition, more a happy side benefit.

Update: There is, in fact, capability in Xbox Live's chat function to already do video chat as well, if you've got the camera. So despite all the reports that Xbox is one of the beneficiaries of a Skype acquisition, it's really hard to see how Skype improves the product.

An Answer to Apple's Facetime

This could also be a competitive play directed at Apple, however. With the introduction of its latest iPhones and iPads, the firm unveiled its Facetime capability. To be sure, you could already do this from computer-to-computer with Skype. So this technology wasn't nearly as mind-blowing as Apple wanted consumers to believe. But Microsoft Windows didn't come equip with any videoconferencing function, and Apple's operating system will going forward -- and it easily interacts with its mobile devices.

Microsoft can just bundle Skype with Windows. Now that's one less way it looks like Apple is ahead of Microsoft. Indeed, it can even integrate Skype into its Windows Mobile platform so that videoconferencing becomes a common technology, defusing Facetime being seen as revolutionary in the mobile space. Skype allows Microsoft to level one aspect of the playing field.


So there are some ways in which Microsoft will certainly like having Skype in its arsenal. But the real question here is whether it was worth $8.5 billion. Really, Skype's value extends beyond its software's capabilities. It does have some very valuable infrastructure in place. It also has a great deal of experience in the space. Finally, it has a large global subscriber database, which Microsoft might love to get its hands on. But again, is all that worth $8.5 billion? Microsoft must think so.

Presented by

Daniel Indiviglio was an associate editor at The Atlantic from 2009 through 2011. He is now the Washington, D.C.-based columnist for Reuters Breakingviews. He is also a 2011 Robert Novak Journalism Fellow through the Phillips Foundation. More

Indiviglio has also written for Forbes. Prior to becoming a journalist, he spent several years working as an investment banker and a consultant.

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