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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 (s msft) in many different ways, the biggest potential boost may come to Windows Phone 7, which is far behind the iOS (s aapl), Android (s goog), and BlackBerry (s rimm) 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(s vz) 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.