Why Microsoft shouldn’t celebrate Cisco’s European Skype defeat too much

Microsoft and Skype logos

Cisco has failed in its attempt to reverse the European Union’s approval of Microsoft’s 2011 $8.5 billion Skype takeover – but the thinking behind the verdict should dampen any Microsoft celebrations.

When the EU green-lit the deal with no reservations, Cisco – which makes expensive videoconferencing gear for the enterprise — threw a hissy fit. It and Italian VoIP outfit Messagenet launched a challenge with the EU General Court, claiming the deal would harm competition. On Wednesday, the court dismissed the action in its entirety.

The logic behind this decision can be fairly summed up like this: Microsoft’s position in the consumer market is not enough of a sure thing to go worrying about market domination. The verdict should not make for comfortable reading over in Redmond:

“Even if the acquisition of Skype enables Microsoft to hold an 80 to 90% share of a segment of consumer communications, corresponding to video communications made on Windows based PCs, the operating system developed by Microsoft, the high market shares and high degree of concentration on that segment of the market are not indicative of a degree of market power which would enable Microsoft to significantly harm effective competition in the internal market…

“Microsoft, which has traditionally held a very large share of the PC software market, is less present on new operating devices, such as tablets and smartphones, which are becoming increasingly important on the consumer communications market. Any attempt to increase prices of communications for users of PCs might encourage them to switch to alternative devices. Furthermore, since services on that market are usually provided for free, a commercial policy of making users pay would run the risk of encouraging users to switch to other providers continuing to offer their services free of charge.

“The Court notes also that, on devices other than Windows based PCs, competing operators of Microsoft have sufficiently large market shares to constitute communication networks whose level of use and attractiveness for users are at least comparable to those of Skype and Microsoft, taken together.”

Cisco and Messagenet also tried to argue that Microsoft’s creation of interoperability between Skype and its enterprise unified communications platform Lync – but not with rival products – was anti-competitive.

On this point, the court noted that “the precise advantages of and the real demand” for such an integrated system were “vague.” It also pointed out that, er, Cisco is a bigger force in the enterprise communications market than Microsoft is.

So much for the threats of market dominance. And farewell, then, to a very silly suit – but also to Microsoft’s former glory days.

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