Why Microsoft bought Skype

Microsoft has spent $8.5 billion to acquire a company outside of its' core competencies. The optimists look toward the wholesale integration of Skype technology into Microsoft's product line. The pessimists say it paid over the odds for a firm that can't deliver anything to Microsoft's bottom line without radical and ruthless surgery - which may well threaten the very value Redmond is seeking to create. So why did Microsoft buy Skype...?

The financial analysts are saying the price is even cheap for the potential revenue Skype could bring. Microsoft remains a producer of enterprise software, with a massive consumer base and a home entertainment division that never quite lives up to its' early promise. Skype could extend or even move Microsoft wholesale into the communications market in a way that its' Windows Phone software can't.  
Was the price right? Microsoft had little choice in a competitive landscape but to pay a premium and steal the company out from under (allegedly) Facebook and Google. If Microsoft is able to integrate Skype video conferencing into its products and on-line services, the debt-laden Skype could become a major source of revenue to make up for the decline in current products. The shrink-wrapped software market will one day disappear. This may turn out to be a bargain price, a small slice of the $50 billion war-chest Microsoft holds. Maybe.

Product Integration Microsoft has the Kinect add-on for the X-Box for game motion-control. Kinect has cameras, it's the product for integrating Skype video calling across the 360 network, which could boost Microsoft's increasingly important gaming operation, particularly given the damage done to Playstation in the last few weeks. For the home market (for which Synergy Research estimates a £2.5 billion market for video chat in the US alone) Skype on X-Box and other devices could be a big earner and Microsoft wants to beat Sony, Nintendo and Google out of our living rooms.

Competition Apple has FaceTime, its video-chatting service, neatly corralled on the iPhone 4 and iPad and there, in the (swanky) Apple ghetto, it will remain. Suddenly Microsoft has a FaceTime-like communications platform across Windows 7 and other platforms as well. It has a better reach than GTalk and actually works which is more than the nascent services in FaceBook. This could be the strand to pull consumers away from iOS and Android, but I'm not convinced until I see where Microsoft positions Skype alongside some costs. We shouldn't forget the coup by Microsoft in stealing Skype away from Google. The lumbering giant still has a few moves to show the young buck.

Boosting Windows Phone 7 Windows Phone 7 is not yet the major player alongside Google's Android platform and Apple iOS. Free (or at least cheap) video chat or VOIP calling to other mobile devices could change that, including Android handsets and iPhones. If you have the bandwidth and the data plan.

Tapping the Skype User Base Skype is a world recognised brand. It may not have revenue but it has a massive user base. This may be one thread to pull in those customers to Microsoft products.

Boosting Enterprise Revenue Microsoft is all too aware that an increasing number of corporates rely on video conferencing. Skype could be the tool for cheaper and more pervasive VOIP conferencing; this could be the money pot. RC