It's been a year since Microsoft announced its $8.5 billionacquisition of Skype. Does it have anything to show for it but atroubled Windows Phone client? It's been a little over a year since Microsoft announced itwas plunking down $8.5 billion for VoIP pioneer Skype . At the time, the size of the deal surprised industry watchers.Sure, Skype had traction as a VoIP platform with well over 100million users, particularly in international markets. But thecompany had failed to add
spark to eBay when the online auctionhouse acquired it in 2005 for $4.1 billion.
For years, eBaystruggled to find a way to leverage Skype and eventually gave up,selling off most of the company to private equity firms for a under $2 billion in 2009. What made Skype worth $8.5 billion to Microsoft? And, a year afterthe deal was announced, what does Microsoft have to show for thedeal? Let it be In executing the deal, Microsoft indicated that it intended tooperate Skype in a more-or-less hands-off manner: Let the companycontinue doing what it does, with an eye towards integrating someof its services into Microsoft products where appropriate. And sofar Skype seems to have kept some of its independence. AlthoughSkype is now a fully-owned subsidiary of Microsoft, itsheadquarters are in Silicon Valley rather than Microsoft'sSeattle-area amalgamation, and in a New York Times piece Skype president Tony Bates is emphatic about how Skype hasretained its identity after the Microsoft acquisition down tousing keycards with the Skype logo, rather than the Microsoftmoniker. And Skype hasn't been sitting on its heels.
Although theMicrosoft acquisition raised fears that Redmond would kill off ordeprecate Skype clients for non-Microsoft platforms, Skype has beenbusy augmenting its clients for Android and iOS (both the iPhone and iPad). Skype has also launched clients for the Sony PlayStation Vita handheld and (just two weeks ago) started rolling out Skype for Xfinity to Comcast customers in a handful of initial markets. And, of course, Skype has teamedup with Facebook to offer Skype-to-Facebook video calling . Skype has also been rolling out updates to its mainstream desktopapps: Skype 5.8 for Windows rolled in Facebook calling support,push-to-talk support aimed at gamers, and it includes the Bing Bar, which is more-or-less browser bloatware from Microsoft rolledinto the Skype installation.
(Skype 5.9 for Windows essentiallyjust fixes appeared earlier this month.) On the Mac, Skype hasfared less well: Skype 5′s interface for Mac OS X rubbed somany people the wrong way that many Mac users refused to upgrade.Although the direction for Skype 5 on Mac was set before theMicrosoft acquisition, being folded into the Redmond giantdoesn't seem to have helped. And then there's Skype for Windows Phone which has been described as essentially useless. Why? Nomultitasking support. Unless the app is running, users don'tget call or message notifications which means users who want toreceive communications from Skype have to leave the app running ontheir Windows Phone device 24/7.
Skype says it will address theissue at some point in the future. And Skype didn't seem toget the memo about Microsoft's high-stakes partnership withNokia — Skype for Windows Phone has been pulled altogetherfrom the Windows Phone Marketplace on the Nokia Lumia 610. Why? Ithas only 256MB of RAM, where Skype says that one-app-all-the-timeclient for Windows Phone needs at least 512MB. Behind the scenes Despite stumbles, Skype's raw numbers continue to grow.According to the New York Times, Skype has seen its raw number ofusers grow 26 percent to nearly 250 million people in just the lastseven months which would be the time since the Microsoftacquisition closed, rather than the full year since it wasannounced.
The piece reports Skype's traffic is up even more,with the number of minutes of calls handled during the firstquarter of 2012 a full 40 percent higher than during the firstquarter of 2011. In April, Skype celebrated having 40 million concurrent users for the first time. Apparently, interest in VoIP calling remainsstrong although there's no indication how much of that isfree Skype-to-Skype calling or Skype-to-mobile or Skype-to-landlinecalling using purchased minutes. Part of the improvements might come from infrastructure upgradesthat Skype is receiving via Microsoft. Remember the Skype crisis atthe end of 2010 when millions of users were unable to connect ? (There was another, somewhat smaller repeat in mid-2011 while the deal was in process.) Skype's technology is builton peer-to-peer networking, and nodes with high bandwidth andserving capacity sometimes would get nominated as one of severalthousand "supernodes" tasked with handling largeamounts of Skype traffic.
Those Skype outages were caused byupdates that took out some supernodes, leaving many users unable toconnect. Behind the scenes, Microsoft has been overhauling Skype'sinfrastructure so it relies less on end-user nodes outside itscontrol and more on hardened, dedicated servers living in datacenters part of Microsoft's broader cloud servicesinfrastructure. There are three benefits. The first is that Skypeservice is far less dependent on borrowed bandwidth and computingresources from ordinary people using its services.
Second directly related it makes Skype technology more appealing toenterprises and organizations, who were loath to permit their usersfrom using Skype for fear of finding themselves (and their networkbandwidth) effectively serving as part of Skype's back-endservices. Third, it improves security. After all, if someone founda way to distribute malware via Skype, a great way to distribute itwould be to set yourself up so you get nominated as a supernode andexchange data with tens of thousands of other Skype users. Bycontrolling the server platform, Microsoft and Skype can run a fartighter ship. Big plans for everybody Besides revamping Skype's infrastructure, Microsoft hasfinally begun to move on making Skype a more ubiquitous part of itsecosystem.
Just this week Microsoft started offering Skype tocomputer makers as an optional installation component for Windows7. You may be thinking, "Windows 7 is so yesterday ," but it is what computer makers are putting on machinesright now, and the operating system will continue to be availablefor some time. Giving computer makers the option put Skype on PCsas part of Windows is the kind of product placement most companiesonly dream about. And adding Skype is optional because, ifMicrosoft made it a default part of Windows, they would run afoulof antitrust regulators. Skype also can't be pre-installed onWindows 7 PCs shipping to China.
Since announcing the acquisition, Microsoft has touted integratingSkype services with its product line. Of course, this has includedMicrosoft Office and Lync , the company's all-in-one communications"solution" for business and enterprise. Thathasn't happened yet. Of more interest to consumers, perhaps, would be integration withthe Xbox 360 gaming console. That hasn't happened yet either.The New York Times reports that such integration isn't likelyduring 2012 and that might even make it a feature exclusive tothe Xbox 720 or whatever Microsoft's follow-on to the Xbox360 might be called.
It may seem foolish for Microsoft to leave theexisting Xbox 360 off the Skype bandwagon, but remember: Skypecan't seem to make a client for Windows Phone that runs inless than 512MB of RAM which happens to be how much memory is inan Xbox 360 console. Skype could probably make an Xbox 360 client,but would it be a client that could run while playing games orwatching video? Maybe not. Of course, Skype will be available for Windows 8. However,that's not really any sign of Microsoft integration:that's simply par for the course.
Skype has always madestrong efforts to support the latest version of Windows. However,this time around, Microsoft may make Skype an optional componentthat PC makers can install with Windows 8 from day one and that,undoubtedly, will help ensure Skype gets an even large foothold inthe Windows desktop world. A bigger question might be about Skype on Windows RT theMetro-only version for ARM-based tablets. There's littledoubt that Microsoft will make a version of Skype for Windows RT,but reports have Skype working in the same sandboxed restrictionsas other Windows RT developers. Right now, nobody knows whetherSkype will be available for Windows RT when it ships.
Industrywatchers also believe Skype is working on a version of its servicebuilt using HTML5 technologies. In theory, that could work in anystandards-supporting HTML5 browser, whether on desktop, mobile, ora tablet. Competition With all that, it would seem that Skype is on pretty solid footing:Close to 250 million users, clients available for a wide variety ofplatforms (even if some of them aren't that great), a majorpresence on iOS (where it's one of the top-downloaded apps ofall time), and prime positioning for Microsoft's consumer andbusiness ecosystems. What's not to love? Skype still faces significant hurdles in the mobile industry.Carriers, for instance, aren't fans. Remember that GoogleVoice was initially blocked on the iPhone because AT&T thought it would put too much strain on theirnetwork.
Although that particular bugaboo has long since beenresolved, the bottom line remains that mobile operators view Skypeas an application that competes with their core services voiceand their very lucrative SMS and MMS messages businesses. That mayseem like an old-school attitude, but it's still prevalent:Nokia CEO Stephen Elop a former Microsoft exec, mind you recently noted that operators don't like Skype , and have pressured Microsoft to make sure Skype is notpre-installed on Windows Phone devices. Perhaps more significant, however, is Skype's fundamentalbusiness model: It sells minutes. Skype was able to become apopular messaging platform in part because it offered both basicinstant messaging and free Skype-to-Skype calling.
The only time Skype costs anyone any moneyis if they want to Skype to someone on a landline or mobile. If youcan keep the connection Internet-only, the call is free. Otherwise,Skype has per-minute rate plans for connecting to landline andmobile phones systems that vary by country. Reach out landlines and mobiles will continue to be a viablebusiness for years to come.
But as mobile and fixed broadbandbecomes more ubiquitous particularly in emerging economies whereSkype enjoys significant popularity the number of people whoneed to use Skype to connect to traditional phone systems will godown, and a greater number of calls will be data-only. Skype could turn to advertising, and in some regard it already has.Shortly before Microsoft moved in to acquire the company it startedrolling out ads on the home tab for Skype for Windows. If revenuefrom purchased minutes declines, Microsoft may look to tie Skype inwith its own advertising services. However, Skype's biggest threat may be creeping featurism. Itdoesn't take more than a minute or two using a Skype clientto be struck by how fiddly and obtuse Skype has become over theyears.
Skype started out as a relatively simple program thatoffered messaging and calling capabilities. Increasingly, Skype nowseems to want to be all things to all people all the time whichmakes for a complicated interface, difficult configuration, and anoften-bewildering user experience. Simply trying to discoverwhether particular contacts are available via Skype can be ahair-pulling experience. The result? The door is wide open for upstarts like WhatsApp and Viber . Both apps are more limited in that they are strictly availablefor mobile, but they offer a far cleaner solution to manyusers' mobile messaging needs than the current incarnation ofSkype.
Similarly, Facebook Messenger has become a de facto messaging standard for mobile users who are obsessing over theirFacebook status, and of course Google Voice can't bediscounted: and Google wastes no opportunity to promote it to notjust Android users, but desktop and iOS users as well. Bottom line It's only been seven months since Microsoft closed the Skypeacquisition, so it's too early to rule on its long-termramifications. However, Microsoft spent $8.5 billion to bring Skype into the fold that's Microsoft'slargest acquisition to date. Investors are going to want to knowwhen they can see benefits to the acquisition apart from Skypeproducing a questionable Windows Phone client and having Microsoftbuild it a better infrastructure. If Skype doesn't startshowing tangible benefits to Microsoft soon, it may find itself asanother bullet point of questionable things Microsoft has doneduring Steve Ballmer's tenure as CEO.
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