Will Microsoft Ruin Skype?

Category: Telephony

On May 10, 2011, VoIP pioneer Skype agreed to be purchased by Microsoft for the princely sum of $8.5 billion in cash. Is this good news or a bad omen for users of the popular Internet calling software? Here's my take...

Microsoft Buys Skype: Good News or Bad?

If you're one of Skype's owners, a check for 8.5 billion dollars is a very good thing. The company was poised to launch an IPO in which it hoped to raise $7 billion. But the Microsoft offer enabled private equity firm Silver Lake Group to earn three times its initial investment in Skype - not bad for an investment made only 18 months ago. eBay stands to make about $1.4 billion on its one-third ownership of Skype, in which the auction site invested $2.4 billion in 2005.

Microsoft is delighted with its purchase of Skype, although analysts are generally puzzled as to what, exactly, Microsoft will do with Skype. The software giant was very vague in its announcement of the deal, saying only that it plans to "integrate" Skype into its existing Xbox Kinect, Office productivity suite, online services division, and Windows. Microsoft already has Skype-like video conferencing in its Windows Live Messenger (formerly MSN Messenger) product. In fact, Messenger has nearly twice the user base of Skype, and an even greater dominance among corporate users. So what's in the Skype deal for Microsoft that is worth this much cash?
Microsoft Skype Merger

For one thing, premium Skype users can talk to landline and cell phone users, while Messenger users can only talk to each other. Skype has invested a lot of money in the infrastructure and carrier agreements that make this universal connectivity possible. Skype helps Microsoft catch up to Google Voice in the VoIP market. Aha, catching up to Google... that's been the Microsoft theme song for quite a few years.

The Skype brand is valuable, too. Over 8 million paying users are fiercely loyal to Skype. And let's face it, "Skype me" is a lot easier to say than "Windows Live Messenger me." There are many ways that Microsoft can expand Skype's paid-user base, too.

Potential Benefits of Skype Integration into MS Products

Integrating Skype into Microsoft Outlook will put the VoIP app on the desktops of millions of business users who just might prefer a voice or video call over email in many situations. The Webcam built into the xBox is an ideal complement for Skype. Then there's Lync, Microsoft's unified communications suite. Skype could end up in every Microsoft application from business meetings to distance learning and family get-togethers.

End-users may benefit from greater exposure to VOIP technology and its money-saving convenience. If the merger makes it easier for some users to drop their landlines in favor of internet-based calling, then that will be a plus. Windows Phone, the Microsoft mobile phone operating system, is an obvious place to embed Skype. It might even help reverse the declining market share of Windows Phone. A bigger issue is whether the mobile providers will tolerate VOIP calling on their cellular networks, but that's another discussion.

Microsoft has had difficulty in the past integrating acquisitions within its huge bureaucracy. And some pundits (me included) are worried that Microsoft will ruin Skype, or make it more cumbersome to use. You need only think back to WebTV, Microsoft Bob, the Zune media player and the Kin phone to reinforce these fears. One promising note is that Skype will operate as a separate division within Microsoft, a very unusual move but a smart one.

Whatever roles Skype plays in the Microsoft business strategy, it's important to preserve the Skype brand name and close connection to customers. If they can do that, and not encumber Skype with extra layers of complexity, I think it will be a win-win situation.

What do YOU think about the Microsoft acquisition of Skype? Post your comment or question below...

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Most recent comments on "Will Microsoft Ruin Skype?"

(See all 25 comments for this article.)

Posted by:

M. B.
11 May 2011

I don't like Microsoft so I will close my Skype account and use Google VOIP.

Posted by:

Jennifer Juniper
11 May 2011

After hearing the news, I am very apprehensive that a stop will be put to the free conversations and the price per minute will be raised for calling those who do not have Skype or even a computer. Only time will tell but I am not hopeful.

Posted by:

11 May 2011

I'm worried that Apple users will be dumped... another favorite Microsoft trick.

Posted by:

12 May 2011

Microsoft will make sure that the best things in life aren't free. Skype was a great ride while it lasted.

Posted by:

Bob P
12 May 2011

At least they bought it instead of reverse engineering it and then driving Skype out of business with endless lawyers fees and paperwork. Microsoft did that to a number of companies in the 1980s and 1990s.
I am no fan of Microsoft! This action by Microsoft isn't good.

Posted by:

12 May 2011

Mention Skype and you think of family and friends near and far.Loads of fun and easy to use.

Mention Microsoft and it all about money and virus inviting software. Social responsiblity is tossed aside beause Microsoft is run by people who have a political mentality.

Goodbye to the good times on Skype. Time to look for something else. Perhaps Linux will come to the rescue.

Posted by:

David Robles
12 May 2011

Well i totally agree with you guys am gonna miss the high quality video calls with friends and family. But Microsoft only knows how to really kill something good. If you guys find other nice option for video calls, let me know.

Posted by:

J. Spencer
12 May 2011

It's worth noting that, despite its popularity, Skype has yet to turn a profit. So it's likely that the free ride would have come to an end (or at least been severely curtailed) regardless of who owned it. You can't live off venture capital forever.

Posted by:

12 May 2011

Such a waste Facebook doesn't incorporate it in their network. Its would be totally cool to chat with friends their, I mean Skype is pretty nice and idiot friendly. Nevertheless I'm looking forward for MS innovation. outsourcing company

Posted by:

12 May 2011

Myabe they'll fix the bug that prevents Excel emptying the clipboard if the Skype add-on is running in Internet Explorer (my, my that's a goodie - how do you spread something that far across a range of software?). Or given Microsoft's track record, maybe they won't.

Posted by:

Mary Mayhem
12 May 2011

This is the best thing that ever happened to the competition.

Posted by:

12 May 2011

Microsoft is like the government..too large to do anything correctly...Skype could be in trouble..trouble for us, the Skype users.

Posted by:

12 May 2011

When you sign up for Skype, you grant them permission "for the Skype Software to utilize the processor and bandwidth of your computer". See "theinternetpatrol.com" and type Skype in their search box. Why would anyone agree to that ? ? ?
And now Microsoft just purchased Skype. I put a HIGH
value on trust, security, freedom and privacy, but then thats just me.

Posted by:

12 May 2011

as mentioned,if M.S. bundles up skype into windows,what will happen in countries that has blocked skype? i.e:Oman.will we have to purchase a vesion of windows which does not include skype,or will the telecomunication companies have to remove the ban on skype???
Any comments are most welcome : donpujitha@gmail.com

Posted by:

12 May 2011

The only job of a corp. is to make profits for the share holders. I just hope there is a way to keep the costs down and hope for the best.

Posted by:

14 May 2011

Suspect the reason M.S. is keeping Skype as a separate unit is the tactic they've used in the past - dump it once they've gutted what made it work. How many people know that M.S. owns Skype now? This isn't a good thing for those who wanted to get rid of the M.S. monopoly on their systems, now they've eased in the back door. Time to find another Voip service.

Posted by:

14 May 2011

I don't use it like a phone, but I like the group voice conference ability amongst friends and that it works very well even on bad or slow internet connections.

I am worried that Microsoft will get rid of the Skype version for Linux though. I'm not a huge Linux user but I like cross-platform apps. Count on Microsoft including it as part of the next version of Windows and putting advertising in it like with MSN.

For online computer-to-phone calling, I use the Call plug-in in Gmail. It works very well and is free for unlimited calling within the US and Canada (I'm in Canada).

Posted by:

Delton Baker
16 May 2011

I still have an Hotmail account from before it was purchased buy Microsoft. It has gone through several upgrades for the most part have been true improvements. What they have done was constantly nag me to upgrade to their "MSN" server that cost money per month. Sort of gives me a warm fuzzy knowing I never gave in to their nagging all these years. I an sure they are trying to keep up with Google's "Voice" telephone service. (Which I might add is very cool, and possibly better than Skype.)

Posted by:

Vinay Asher
14 Jan 2013

Weather microsoft merges skype to msn but as far as i am concerned,based in Oman skype is blocked and my msn mail will be blocked.This is disaster for me

Posted by:

30 Jun 2020

Skype has been officially acquired by Microsoft and we all know now how improved Skype`s performance is. It works in a much better way. But for business meetings, I would still recommend using R-HUB`s web video conferencing servers b/c of its unprecedented security.

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