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Summary:

Skype has acquired group messaging startup GroupMe for a rumored $85 million. The deal, while a good move on paper, isn’t going to be enough, as Skype itself is going through an identity crisis — whether it wants to be a consumer or an enterprise communications company.

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Skype, the Internet telephony company in the process of being acquired by Microsoft says it’s buying year-old group messaging startup, GroupMe. The price tag, according to some estimates, is $85 million, though Skype and GroupMe have yet to confirm the deal terms. GroupMe, which has raised over $11 million in two rounds of venture funding, has 20 employees and is generally viewed as one of the more popular messaging applications for mobile phones.

Interactions not communication

Why is Skype spending so much money on a relatively small company with a relatively small user base when compared to Skype? The answer can be found in some of my posts from earlier this year. When contemplating Google’s ongoing battle with Facebook, I wrote:

…instead of getting bogged down by the old-fashioned notion of communication – phone calls, emails, instant messages and text messages – it needs to think about interactions…..To me, interactions are synchronous, are highly personal, are location-aware and allow the sharing of experiences, whether it’s photographs, video streams or simply smiley faces. Interactions are supposed to mimic the feeling of actually being there. Interactions are about enmeshing the virtual with the physical.

In today’s hyper-connected world, in order to be relevant, a service provider or a device maker has to figure out how to constantly engage its end users and in doing so, keep their attention and thus ensure the ongoing need for their offerings. As ngmoco CEO Neil Young recently told me, the longer you have an opportunity to engage with the customer, the more opportunities you have for more monetization.

Skype so far has been reliant on its instant messaging and voice (and video) call offerings to engage its hundreds of millions of users. However, the mobile phone changes that behavior – shifting the focus to more instantaneous services such a GroupMe in addition to a combination of other communication mediums – SMS, mobile phone, Beluga, Twitter and Facebook Messages in addition to email.

Skype, which has been one of the earliest beneficiaries of the iPhone boom, has seen lightweight group messaging clients like GroupMe gaining in popularity, and it’s right to be worried. GroupMe, which uses Internet telephony start-up Twilio’s back-end, could have easily added voice chats to the system and someday, even video, thus becoming an instant competitor for Skype.

So why did GroupMe sell out?

And as good as their future looked on paper, I’m pretty sure increasing competition from Facebook must have spooked the guys at GroupMe, who only last week told Ryan Kim that they wanted to remain independent.

The fact remains that the sands of time were against GroupMe. The oncoming competition from Facebook Messenger, Google’s Huddle and most importantly Apple’s iMessage were going to fundamentally increase the pressure on GroupMe, which in turn decided that it was better to find comfort in the arms of a much larger company.

What Skype gets out of the deal

For starters, Skype can use GroupMe and other apps it’s buying up to build a communication platform for Microsoft’s Windows Phone 7 offering. That would make a lot of strategic sense. In addition, it would allow Skype/Microsoft to have a hedge against Facebook.

Even though Skype is a partner with Facebook for now, they need to be worried about the future, as Facebook will eventually compete with them. Just as Skype reduced voice to an application on the Internet, Facebook is slowly reducing voice calls to an afterthought in a multi-communication world.

When Facebook announced its video chat offering in partnership with Skype, I wrote:

Even if we buy into the argument that Facebook can get Skype a lot of new customers, I still think it is a highly risky strategy, and it runs the risk of the company losing a grip on its customers. Let’s remember that at one point even IBM thought Microsoft was only going to help them sell more computers and make more money.

Skype has a big subscriber base, but it can’t bet on holding on to them forever. At one time, AOL and Myspace were companies with hundreds of millions of subscribers and now they are a quickly vanishing shadow in muddy waters. In buying GroupMe, Skype for now gets a chance to build a new mobile experience and hopefully find engagement and attention.

Will that be enough for Skype?

From a long-term perspective, Skype as an entity is going to have an identity crisis. It cannot figure out whether it wants to be a friend to the consumers or whether it wants to be a corporation-focused collaboration company.

The muddled, confusing and terrible user experience of its desktop applications only highlights that dichotomy.  And that identity confusion is so aptly reflected in this blog post from company CEO Tony Bates.

This acquisition is another step towards our vision to provide a global multi-modal and multi-platform communications experience. It complements our existing leadership in voice and video communications by providing best in class mobile text-based communications and innovative features around group messaging that enable users to connect, share locations and photos and make plans with their closest ties. This latest acquisition, coupled with our acquisition of Qik earlier this year, augments our role as an innovator in driving unique mobile user experiences.

I think the big decision Bates & Co. need to make: decide who they really want to be!

  1. facebook will not compete with skype, they are both owned (wholly and partially) by microsoft.

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    1. You will be surprised by the marginal nature of Microsoft’s ownership of Facebook. I am betting it is Facebook that dictates the terms of that relationship. Facebook is in it to win it and if that means shunting aside Skype and Microsoft, they will.

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  2. OffBeatMammal Sunday, August 21, 2011

    nice to see Skype not just battening down until the MS $ come through… they’re continuing to run a smart business.
    Sadly though with the last couple of releases it looks like the quality of their core product is suffering – the UI on OSX and Windows has become cluttered and less intuitive (folks like my Mum are scared and confused by it now), things like auto-login aren’t working reliably (so I keep ending up not logged in), and things like the Skype “home” page keep popping up (I’d pay to kill that!).

    that coupled with things like Google Voice muscling in on the international calling scene at very competitive rates, as well as rivals like Viber getting a lot of love and you have to wonder how long they’ll be able to command the industry leading position they have

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  3. When Microsoft bought Skype, it didn’t need technology. Microsoft already had voice chat and audio/video codecs. Microsoft was just buying a user base.

    So what has effectively happened is that GroupMe is now under the Microsoft umbrella. However, Microsoft doesn’t know who it wants to be. It deserted its business phone users (abandoning Windows Mobile), failed to create consumer desire for Windows Phone, and doesn’t have a viable business model for Windows Phone (licensing an OS for a fee won’t work against advertising-based Android).

    If the parent company is lost and doesn’t know who it is, then the subdivisions will suffer the same dilemma. In that way, GroupMe, Skype and Microsoft are a perfect fit.

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    1. J.Stewart

      Well thought out argument. I would only add — I think Skype despite its size and network continues to make little mistakes that will only get compounded in the future. I think by the time Microsoft gets to it, it will be in a difficult place.

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  4. I am just curious why can’t Skype build up the technology themselves since Groupme is just product of a TC Hackathon over the weekend. In terms of user base, Skype has plenty. In terms of talent, it’s over paying for the obscene amount for this.

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  5. This is completely crazy. They’re definitely not worth a fraction of that! It’s amazing how these really early companies are selling out so quickly instead of creating a real business.

    I Doubt companies like http://www.swifto.com or turntable.fm be willing to sell for that price..

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  6. don’t take investment if you want to remain independent. investors don’t care if you want to remain independent they want to double their money.

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  7. The start ups are always the seeds to innovation. And if they giving out to big companies for the merger, the uniqueness is loss to the strategies of the host companies. Thanks for the mention, it sure is a news for me.
    http://www.techendeavour.com

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