What the Skype deal means for Microsoft?

Microsoft snapped an 8.5 billion USD deal to acquire Skype. The deal sure has raised a lot of eyebrows - what is Microsoft up to? How and where are they planning to use Skype? Is it a game-changer or is Skype doomed forever? I have a couple of observations regarding the deal but first the casual conversation that triggered the thought process.

Mansi: Microsoft paid 8.5 Billion USD for Skype? Did someone not tell them that they can download it from the website for free???

me:  Actually they want to put it on their website for everyone to download after shelling out some bucks instead of just free ;)

Mansi:  lol  I’ll be amazed if they get 50 bucks back out of 8.5 billion USD.

me:  yes, the deal has surprised everyone ..let's see what Microsoft has planned

Mansi:  yeah..Skype walo ki to nikal padi (Skype people hit upon a lottery though). Offices mein champagne chhalak rahi hogi (They must be enjoying they Champagne in their offices)

me:  koi aisa chhotta sa tool socho ..hum bhi banate hain..shayad usey bhi microsft wale khareed len [Think about some tool that we can make so that Microsoft buys it ;) ]

Mansi:  sacchi. mere saare IT k dost mil ke kuch do-chaar fundoo apps bana hi lete and ofcors finance aur marketing wale friends jo MS ko chuna lagate [ I wish my IT friends would build some apps and Marketing friends would sell it to MS for a huge profit :) ]

me:  idea do ..banane ke liye outsourcing hai  [You just need an idea..Implementation can be outsourced]

Mansi:   haan. woh to hai [Yep..That’s true]

me:  From what I have read..Facebook was also in the hunt but Microsoft stole it with big bucks

Mansi:  i doubt it 

me:  can be true..can counter Facetime app with millions of users already using it..can be driver if integrated within some other application

Mansi:  hmmm yeah. it cud very well be a strategy to get a higher price offered u know when u "create" a demand ?? Sometimes companies may not really want software or rights but they want other companies to not have it that’s how the smaller ones screw around wid the bigger ones they dont want something as much as they want others to not have it

me:  that can be a driver but I doubt spending billions so just that somebody else doesn't have it

Mansi:  yeah that’s what we think for the biggies that one thing is much more than just money. Think IBM and Microsoft do u really think MS wud let go off a gud deal for a few billion dollars knowing that IBM was after it ?

me:  see Microsoft is already looking downwards and then they bought Skype which lost $7 million in the last year alone..they better have some use for what they have bought rather than just the intent of denying it to others 

Mansi:  lol. I’m not saying they wouldn’t have any use I’m just saying that creating that impression that another company wants it increases the market value 

me:  u are saying from Skype’s perspective

Mansi:  yup. u know ppl say that in the end everything boils down to money  but it’s not true where money doesn’t come into picture, it boils down to ego and ego corrupts more and in much worse ways than money

me:  Now you are going philosophical... but I doubt Microsoft will shell out billions just based on rumors or just to satiate somebody’s ego :)

Of course Microsoft must have thought long and thought hard before making the deal. 8.5 billion USD is not a small amount even for Microsoft in this economy and that too spending it on a company that lost $7 million in the last year alone. What could be the drivers that must have triggered the deal? Here are few that I could think of:

a)         Reach: According to a report on Techcrunch, Skype already has some 600 million registered users, buying Skype straightaway gives Microsoft the advantage of reaching out to those registered users.

b)         Added value to existing products: Think of the value that Skype could add if integrated on Windows phones or networking capabilities it would add to Xbox and Kinect. Enterprise capabilities it can add if integrated into MS Outlook and other office tools. Internet messaging capabilities if added to IE. In short, it can add a lot of value if integrated seamlessly to MS’s existing product base.

c)         Reach outside MS fan base: Skype already has apps for Android and Apple. If Microsoft can find ways to monetize it (through advertizing etc), it can even earn profit from its competitors fan base

d)         Counters Facetime: Windows now has something to counter Apple’s Facetime which I believe is going to get rich dividends whosoever masters the technology first makes it available to the users not only through wi-fi but also on 3G and beyond.

But how, where and why they used is still to be seen? Also they have kind of bought their direct competition. MS has be spending a lot of money on their Windows Live messenger. So now will messenger be shelved or MS would look at ways of integrating the two, still remains to seen. Whether MS reaps benefits out of this deal is an open question but one thing is for sure, this deal indeed has generated a lot of buzz.

Do let me know what you think of the deal?

PostScript [After I had sent the writeup to Mansi for review before publishing :)]:

Mansi:  the practical points that you have added is something that would have justified the deal

but it could very well be as simple as a zidd to just have something so that someone else does not have it. we do it all the time.. see a great pair of shoes....and u want to buy them so much

that u have all the justifications to validate the purchase ;)

me:  very true..the points I have added is my opinion of why that happened..and the conversation with u is what drove me to think about it

Mansi:  yup..its cool

 me:  so u r infact a 50% contributor :)

Mansi:  i liked the write up lol

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