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Summary:

Microsoft’s $8.5 billion purchase of Skype is official, giving the Redmond company an instant voice and video calling user-base of more than 170 million globally connected customers. With only an estimated 2.5 million Windows Phone 7 handsets sold, there’s ample opportunity here to boost smartphone sales.

skype-wp7

Microsoft’s $8.5 billion purchase of Skype is now official, giving the Redmond company an instant voice and video calling user-base of more than 170 million connected customers around the world. That compares to only an estimated 2.5 million Windows Phone 7 handsets shipped, not sold to customers in the first quarter of this year. While the Skype deal can help Microsoft in many different ways, the biggest potential boost may come to Windows Phone 7, which is far behind the iOS, Android, and BlackBerry platforms.

Aside from selling fewer handsets than these competitors, Microsoft had no answer to their video call offerings until the Skype buy, although the application was already expected to support Microsoft phones later this year. Apple has FaceTime on new iOS devices; Google just added video chat to Google Talk on Android phones (it already existed on Honeycomb tablets); and even Research In Motion is in the game with video calls on the QNX-powered PlayBook tablet. I’d expect RIM to bring the same to smartphones as it transitions them to the QNX operating system in the next year.

As Om mentioned yesterday, the Skype deal gives Microsoft something else it didn’t have: a more direct tie-in to the network operators for both voice and video calls. Again, the company was on the outside looking in as competitors developed their own voice solutions. Google Talk with video and Google Voice are perfect examples of what Microsoft didn’t have until now. Instead of simply selling Windows Phone 7 licenses to handset makers, Microsoft can gain more direct involvement at the network level with Windows Phone 7. That could lead to value-add services and revenue generators for the company and carriers; last year’s exclusive Android deal between Skype and Verizon Wireless is a good example. And according to TeleGeography, Skype generated 12.8 billion minutes through paid services in 2010.

At the consumer handset level, there are several other opportunities for Microsoft to leverage Skype and sell more Windows Phone 7 devices as well. While it will take some time for Microsoft to digest and integrate Skype in its mobile platform, I’m thinking that we’ll soon see a change in the minimum hardware specifications for a Windows Phone 7 device. Currently, there is no requirement for a front facing camera. Skype video chat accounted for 40 percent of all Skype minutes as of December, and as mobile broadband networks mature, that number is likely to increase. Adding a front-facing camera for Skype support will help Windows Phone 7 devices gain parity with competing devices and offers a solid VoIP platform, which could help boost sales.

Microsoft could also leverage the Skype deal with its Xbox Live membership. Perhaps the company includes a small amount of monthly SkypeOut minutes to Windows Phone 7 devices as part of the Xbox Live annual membership. In some crude sense, such a promotion turns Microsoft into a pseudo-MVNO and reduces a consumer’s reliance on their carrier (and perhaps their bill) as they can potentially reduce their monthly voice plan.

Given that Skype has been in use for more than a half-dozen years and has a growing userbase, it would be difficult for Microsoft to begin eliminating Skype support for other mobile platforms. But future features and other value-add services could be offered exclusively or first on Windows Phone 7 devices going forward, giving consumers a “killer app” to consider when making a smartphone purchase. The Skype deal won’t immediately vault Windows Phone 7 to the top of the heap, but it does have the potential to boost flagging sales once Skype is integrated into the platform and handsets gain a front-facing camera by default.

  1. Everyone in the US doesn’t seem to understand that video calling is part of the 3GPP standards and implemented by all Nokia 3G phones and in use all across Europe and Asia. I’m sure Nokia will insist on support for it and a front facing camera in Windows Phone.

    1. Kevin C. Tofel Jody Tuesday, May 10, 2011

      Agree Jody, but video calling standards haven’t done anything to advance the service in the U.S. And if MSFT wanted to use 3GPP, I don’t think they would have bought Skype in the first place. Also not sure that Nokia is in a position to insist on support for 3GPP in WP7 but I get your point.

  2. Ballmer has always had a hardon for huge purchase/merger. My question is why did Nokia board let MS has the company for free instead of selling it for billions.

    WP7 is no going anywhere. It will be repackaged as WP8 in 1 year but it’s still not going anywhere.

    1. “WP7 is no going anywhere. It will be repackaged as WP8 in 1 year but it’s still not going anywhere.”

      LOL! So much hope in this statement. Dream on!

  3. When Balmer says that he is committed to keeping Skype on “non-Microsoft” platforms where it exists today (assuming he means it), that would imply that Skype video and voice calls on iOS and Android aren’t going anywhere soon.

    That means, Skype on Windows Phone 7 wouldn’t be a killer app anymore since the other platforms have it too (and have it before Windows Phone 7). It just puts Windows Phone 7 abreast with the other platforms, through an expensive acquisition.

    1. Skype on WP7 would be the killer app, because unlike the other platforms where Skype would simply be an app, on WP7 it would be fully integrated not only within the WP7 OS, but also integrated with Xbox Live, Kinect, Office, and other Microsoft platforms.

  4. After Microsoft positioned WP7 as the most “operator-friendly” mobile OS at MWC, it will have to proceed with caution regarding Skype’s integrations into handsets, I think. Operators, in general, aren’t too excited about popular consumer services that let customers make voice and video calls over their networks, without having to pay for minutes. But I’m really curious about learning what the Skype deal means for things like VoLTE (http://www.gsmworld.com/our-work/mobile_broadband/VoLTE.htm)? A challenge to that still shaky system, perhaps? Not very operator-friendly. :)

  5. If Skype is integrated at the OS level for Windows Phone devices like it is for the Nokia N900 it could be a big advantage. Not just an “app” but something integral to to the phone. Also, some sort of Skype integration into Outlook or Office would make for enhanced contact management.

    1. Kevin C. Tofel Stuart Tuesday, May 10, 2011

      Completely agree, Stuart, and for $8.5b, I have to believe deep Skype integration will happen.

      1. I guess my only question is: how deep?

        Do you think we’ll see Link being replaced for Skype? Will Microsoft attempt to get a PSTN (public switched telephone network) POP to further reduce the cost of Skype? I have to think that Microsoft would love to get into the bandwidth business, and Skype positions them overnight as a market mover in that space.

  6. Microsoft really have to fight among another OS, especially Android. Purchasing skype is a brilliant idea to do, so it has plus value for it users

  7. Joshua Goldbard Tuesday, May 10, 2011

    Skype has a killer engineering corp. I would expect to start seeing this in the Microsoft Enterprise product portfolio in roughly nine months. Microsoft’s link product has a number of issues, and dumping it’s video portion in favor of Skype’s IP might be just the ticket.

    I wrote a bit about the topic on my blog here:

    http://thepbxblog.com/2011/05/10/microsoft-buys-skype-and-history-paints-the-tea-leaves/

    Thanks for your writing. I think WP7 Skype integration is absolutely essential, but turning every Xbox into a video endpoint is a game changer. We’re starting to see a convergence of consumer technology with enterprise applications.

  8. outsourcingcompany Wednesday, May 11, 2011

    Google beware MS has Skype now. I don’t know whats MS mind is but its sure quite intriguing. I always thought Google would always makes the moves first since the rumor last week.

  9. Does anybody think the aquisition will boost developer interest in the near future?

    1. In a word, no.

      If your company isn’t pushing iOS or Android, you essentially have no customer base in the mobile space. WP7 is cool, but it lacks the userbase and the overall “clean-ness” of the Apple or Google experience.

      I’d love to see some innovative ways to link diverse video endpoints, but I don’t see it coming up too soon. No one likes to develop for platforms where monetization is difficult. There’s always the danger of Twitter, where the parent company can release Apps even after they tell their developer base they aren’t going to enter the market.

      1. “clean-ness” of Google experience? I find this laughable.
        Andriod is the messiest mobile platform todate, not to mention it offers the poorest end-user experience.
        I configure smart phones for all users in my organization. Most users with android phones keep coming back to me to make sense of tens and tens of junk icons and widets that’s all over thier phones by default. I bet google makes some $$$ for filling up anriod with 3rd party junk. There is nothing clean about that.

  10. Some important points to consider:

    First of all, the 500 million or so Skype users have for the most part one thing in common: they like to get stuff for free. Microsoft in the future may try to charge for add-ons, but they’re going to find charging for anything Skype-related difficult. The service will continue to be as it always has since originally being bought be eBay a money loser.

    More importantly, while the technology behind Skype is proprietary, its feature set is not and can be easily duplicated. Microsoft could have done so for millions, not billions.

    So in the end, what does Microsoft get?

    It gets the name.

    It gets a large number of customers of dubious value.

    It gets a technology easily whose features can be easily duplicated.

    It gets network connections whose operators will now start asking for more coin since deep pockets now support the product.

    An excuse to improve WP7 phones to support the full Skype feature set. (What, Microsoft wasn’t committed to improving WP7 before the purchase!?) That’s good for future WP7 owners, bad if your a current YP7 phone and are considering purchasing one soon.

    The distinction of supplanting eBay for the title of “Most Overpaying for a Software Company”. It’s ironic that eBay makes out like a bandit on the deal.

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