Microsoft Plays Defense with Skype Acquisition

Steven Zolman
May. 17,2011 |

Microsoft’s enterprise customers have been left scratching their heads over last week’s acquisition of Skype.

Microsoft has spent years pitching their “unified” messaging system that’s built on Windows, Exchange, SharePoint, Office Communication Server (now called Lync) … and a few other products I can’t recall… that, in total, are supposed to allow users to instant message, web/video conference, and generally collaborate “at the speed of thought”.

But now has Microsoft decided all that stuff wasn’t good enough and that Skype, a company that’s never even turned a profit, is better?

Industry punditry has been generally positive on the news.  Consensus seems to be that Skype fills a big hole in MSFT’s consumer / small business offerings. This is simply untrue, since Live Messenger feature for feature is very comparable to Skype.  The problem with Live Messenger is, it’s a Microsoft product and therefore it’s saddled with a history of system outages and data losses and the general un-hipness that clings to MSFT in the consumer’s mind.

Skype, on the other hand,  is a well-regarded and somewhat hip product, growing nicely in global markets where Microsoft needs more presence and popular with that young and upwardly mobile web demographic that Microsoft wants to reach.

My personal take goes like this: Microsoft and Steve Ballmer in particular continue their obsession with gaining and protecting market share, or more accurately, share of eyeballs, on end user screens. And, with the huge pile of cash Microsoft is sitting on, a few billion to acquire some relevancy while simultaneously blocking Google or Facebook from making the acquisition, is a good deal in Microsoft’s eyes.

Whether it’s good for shareholders remains to be seen.  I would just note that in 2010, Skype had 170 million users, only 6 percent of whom ever pay any money to Skype.  Still, 10 million new customers for $8.5 billion – is that such a bad deal?  At a purchase price of $8.5 billion, that’s $833 to acquire each one of those subscribers.  In marketing terms, that kind of cost of customer acquisition is called “stupid”.

Ok so it wasn’t the customer list that sealed the deal, and we hope it wasn’t the technology, because Microsoft already has at least two existing solutions today (Lync and Live Messenger).  What was it?  My guess: pure panicky reaction to the prospect that Google is getting active in voice, and Facebook could as well.

Enterprise customers - let’s not forget – are largely a stable cash cow for Microsoft.  And not all that huge of a cash cow, either.  Steve Ballmer is still seeking the market share on the web that will allow Microsoft to sell advertising for billions of eyeballs and therefore take the stock price to Google and Facebook levels of valuation.

I don’t think Skype will get them there though, and on balance it looks like a very expensive distraction.

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