Skype’s stock changes hands. Sometime soon employees may get new badges. Payroll processing and PR firms may change. But, for the most part, Skype’s employees will stay the course, building more Skype in more places.
Skype division President Tony Bates must make good on his promise of synergy to Ballmer.
The first step is to build up the team that treats the rest of Microsoft as major account customers. Each division and many Microsoft product lines will get their own account manager.
They will be responsible for helping the Entertainment division, for example, bring Skype to Xbox Kinect. This is a “Skype inside” approach, building on Skype’s platform products.
Bundling Skype with Microsoft products is the low-hanging fruit. Preinstalled in Windows. An IE toolbar. A home presence on Windows Phone. One more element in Microsoft Office. Low integration cost, low product risk, massive distribution.
These two strategies will change the Skype Division and the Skype products more than the change in owners. Skype will be learning from users and customers indirectly, through the lens of Microsoft’s divisions. So Skype must hold on to end-customer relationships to keep understanding new users. Microsoft will pull Skype in even more directions, with multiple conflicting world views. Skype will learn to hold its own world view and mission.
The coolest things will be the small leaks. Microsoft has great depth of process, experience with scale, reach in the workplace, research on the frontiers of computing. Those will spark deeper insights and innovation at Skype and those will be delightful to watch.
For those still working at Skype, congratulations on the new chapter in the Skype story.
Skype was all promise in 2003. Now it is achievement. They are no longer the tiny underdog fighting the phone companies. They are a billion dollar a year business with a thousand employees serving nearly two hundred million people 255 billion of minutes of live conversation every year, rounding slightly. They’ve pulled so much hard currency from national phone companies that Russia’s Chamber of Commerce declared Skype an enemy of the state. They’ve changed consumer behavior and become the default way to talk across borders for anyone with Internet access.
When should regulators consider this a threat?
Now, when an ounce of prevention matters most.
Microsoft wants to multiply Skype’s reach and impact. Microsoft seeks to combine Skype with its other communications properties and bring realtime communication to its non-communication products. Skype, along with Nokia, completes Microsoft’s vision for the Windows Phone operating system. We’ll see Skype inside Microsoft games, Lync business phones, Bing click-and-call adverts, Dynamics call center solutions, Office, Internet Explorer and Internet Explorer.
As huge as Skype is, they could be ten times bigger in a few years with Microsoft’s help. $10B in revenue, 2 billion users, trillions of minutes of live conversation. That comes with market power.
US regulators cleared the deal. A decision by EU authorities is days away.
Who is affected?
At least one Italian VoIP company is reported opposing the deal, per EurActiv. Messagenet asked the authorities to require Microsoft not to bundle Skype with Windows and to compel interop with other Internet presence, IM, telephony, and video chat services.
Jim Courtney has a complete report on the European Commission’s review of the merger. News early next month but Jim works through how they’ll get there. Think the Commish will call for public comment? Is Microskype good for telecoms competition in Europe? What do Europe’s big telcos have to say? Is Skype a bigger threat on its own or with Microsoft’s backing?
What of the potential benefits resulting from plans for Skype integration into Microsoft’s business-class communication products, such as Lync? That remains a mystery, and calls into question the level of commitment that Microsoft will make to open standards and to widespread integration.
Is the acquisition good for Skype? Given the valuation, it’s certainly good for the Skype shareholders. But what about the service itself? In a word, no. History suggests that Microsoft’s tendency towards notoriously proprietary tactics will slow the development of Skype as a business tool. Will Microsoft wall-off Skype from competing products, completely? Or, at a bare minimum will Microsoft ensure their products work much better with Skype than those from competitors? Time will tell.
That was May 13th, the Wednesday after the announcement. Now, eleven days later, some news via email.
Product notification:
Skype for Asterisk will not be available for sale or activation after July 26, 2011.
Skype for Asterisk was developed by Digium in cooperation with Skype. It includes proprietary software from Skype that allows Asterisk to join the Skype network as a native client. Skype has decided not to renew the agreement that permits us to package this proprietary software. Therefore Skype for Asterisk sales and activations will cease on July 26, 2011.
This change should not affect any existing users of Skype for Asterisk. Representatives of Skype have assured us that they will continue to support and maintain the Skype for Asterisk software for a period of two years thereafter, as specified in the agreement with Digium. We expect that users of Skype for Asterisk will be able to continue using their Asterisk systems on the Skype network until at least July 26, 2013. Skype may extend this at their discretion.
Skype for Asterisk remains for sale and activation until July 26, 2011. Please complete any purchases and activations before that date.
Thank you for your business.
Digium Product Management
I think it’s simple housecleaning on Skype’s part. Skype for Asterisk has little usage, is redundant with existing and future Skype products, and offers no revenue to speak of. Former Skype Journal anchor Jim Courtney IM’d this was probably in the works before the Microsoft deal.
What can Skype’s management do to preserve strategic focus while also integrating Skype products into Microsoft’s other businesses? Skype is in a long term battle to be the world’s dominant communication medium. This means it has non-Microsoft rivals among wireless and wired telcos, collaboration products like WebEx, messenger products, video calling and conferencing services, game-centered entertainment products, Internet identity providers and many other fronts. At the same time Microsoft announced Skype or Skype features would show up in at least seven different Microsoft product lines. How do you stick to what is strategic given the temptation to partner throughout Redmond?
Will Microsoft continue both Skype & Qik as it is? I’d imagine Qik features showing up in all Skype products over the next six months. After that, Qik would be a good sub-brand for a whole new Skype product family.
Four stages after Microsoft finishes buying Skype:
1. Review. Skype will rethink all of its alliances, partnerships and lines of business. Are you operating Skype stores? Handling payroll in Europe? Accepting Skype calls in your conference bridge? Microsoft may offer better services internally or have existing contracts at lower rates. You may be asked to rebid and your Skype contacts may change. Again.
2. Anxiety. Skype will change or further abandon its developer platforms, leaving some companies cold. Skype will drop some service partners and suppliers as they find better counterparts within Microsoft’s ecosystem.
3. Exuberance. Skype stats will start to swell. Expect users and usage to double and double again over the next few years as Microsoft sells Skype with Windows, XBox, and business products. Skype’s developer products will ship; Skype for web developers, hardware developers, and desktop developers. You can do more with Skype’s new platforms and Microsoft knows how to treat developers well.
4. Crunch. All this goodness will attract competitors, with low-hanging fruit gone in minutes. A much bigger pond with many bigger fish.
When eBay bought Skype in 2005, Microsoft, Yahoo!, Google and AOL all added talent, bought technologies and beefed up their messenger products. Six years’ later, how will Microsoft’s rivals respond to Microsoft buying Skype?
Apple. FaceTime gets more headcount, gets group video, comes out on Windows, distributed with QuickTime and iTunes. Maybe by WWDC.
Google. Renewed commitment to build out Google Voice. Internal partnership with YouTube speeds up, seeking to enable live video conversation in comments, Ustream-style broadcasting, and WebEx-style video meetings.
Salesforce. Has Chatter, buys TokBox for video chat at scale, developer channel dives in and video enables customer service.
Facebook. Waits for Skype cloud services to power next generation of fb chat.
Aol. Reinvests in AIM. For six months. Then partners with Microsoft/Skype for sign in and text chat interoperability.
Comcast. AT&T. BT. Orange. Myopic attempts to squeeze old POTS into new media. (Think Morse code mobile app.)
Cisco. Spins out video conferencing products as their own company, refocuses on networking products.
From the news release, “Skype will become a new business division within Microsoft, and Skype CEO Tony Bates will assume the title of president of the Microsoft Skype Division, reporting directly to Ballmer.” This settles fears that Skype would be broken for parts, divided among the Live, entertainment, and business product divisions.
Product plans: “Skype will support Microsoft devices like Xbox and Kinect, Windows Phone and a wide array of Windows devices, and Microsoft will connect Skype users with Lync, Outlook, Xbox Live and other communities. Microsoft will continue to invest in and support Skype clients on non-Microsoft platforms.”
Microsoft bought Skype because Skype has 180 million people actively video calling. It doesn’t hurt that Skype basically pays for itself and is growing faster than Microsoft.
As cities move to 4G/5G and fiber:
You want to offer people video chat at home, at school, and at work. Mobile phones, tablets, desktops, game consoles, augmented reality, televisions, everywhere.
You want to offer developers a platform for building video chat into other apps. Scriptable clients, browser extensions, hardware embeds, and cloud services; all on Skype’s roadmap. Skype can’t offer contexts to trigger and shape conversation, but a million Microsoft developers will.
You want to offer Microsoft’s product managers new conversation features. "Better with video chat" can be tried across Microsoft’s hundreds of products for the next three years; we’ll walk through some of the likely in-Microsoft partnerships in another post.
You want to offer subscriptions for premium services that pay for basic services. Freemium bootstrapped Skype and should continue as Skype adds more premium services.
You want to be making enough money that you can pay off greedy carriers (assuming failure of net neutrality) and governments that choose to tax.
I posted this answer to Quora in February. “Would Facebook pre-IPO stock be worth more if pooled with Skype stock?”
First off, Facebook doesn’t need to buy Skype to get Skype features in 2011. Skype would be delighted if Facebook drove customers to create Skype accounts and chat/call from within the Facebook mobile apps.
But let’s imagine they are talking about mergers and acquisitions. I’m assuming Skype shareholders would swap Skype shares for Facebook shares. What’s in it for both investors?
For Skype’s investors, they are trading their own shot at an early IPO for a small piece of Facebook’s IPO, giving up control of Skype’s IPO timing and structure.
Skype is the largest company of its kind, continues to grow briskly, has a new management team releasing new products and generating new revenue streams at a brisk pace (2011 should be Skype’s first $billion revenue year), and can rightfully claim they are seizing an unfair share of the trillion dollar telecom industry. Let’s say performance and conditions are good and they value the company at $5B later this year. That’s a relatively quick and sure thing, compared to Facebook. Facebook’s IPO would be an order of magnitude larger, and comes with risks of scale.
Let’s look at it from the other side.
Would Facebook’s investors be willing to dilute their ownership by another ten percent or so to bring in Skype?
Would having Skype inside the company make Facebook stock worth another ten percent at IPO? a few years’ after IPO?
Would Skype become less valuable as a Facebook company or division, lacking the neutrality to partner with other social network sites?
Are the risks of post-merger business integration problems large enough to threaten the overall perception of the company?
Would Skype’s we-sell-to-our-users strategy conflict with Facebook’s we-sell-our-users-to-advertisers strategy?
Is it worth the net risks to keep rivals from buying Skype’s technology and market presence?
While there are some obvious operational synergies (both companies help people talk with each other), and untapped opportunities (enterprise customers, social group video), I can’t see why merging now would offer any advantages to their investors.
Internal power struggles. While I agree with Andy that there’s some conflict within the company as the US operations become larger, this is normal enterprise adjustment for a company Skype’s size. This is only a problem if it gets in the way of doing the right things and doing them well.
Sustaining a freemium business model. When all of your friends and business contacts are on Skype, why SkypeOut and give Skype money? So Skype is doing the obvious thing: build new premium products that are worth a few bucks. Voice mail and group video are priced for the developed world so Skype is starting to nibble at its identity as a “people’s phone company.”
US regulatory concerns. The Internet hasn’t changed, much, but D.C. has. Skype is faced with a House that is hostile to net-neutrality and protective of large, corporate, industrial dinosaurs from BigContent to BigTelco. The US Justice Department is advocating for a deeper and wider surveillance state. Courts are emasculating the FCC’s power to promote open broadband. Skype relies on an open, free, and fair playing field. Skype needs US citizens and corporate customers who care enough to fight for it and the time to build that brand love.
Skype at work.
Andy seems to agree with a Forrester report that desktop video calling faces big resistance at work. I think that’s balderdash. This is based on surveys of what people say, not observation of what people do. If you ask different questions, you’ll get different answers: Would you like the freedom to Skype from work the way you Skype from home? Would you like to be able to Skype your kids or friends from the office? Would you like to be able to participate in more meetings remotely? Would you like to be more persuasive in conference calls?
Andy portrays Skype at a crossroads: enterprise or small business. Andy makes the case that SMBs are an easier market and a better fit for Skype, that the enterprise business calls for a multiyear, high-touch campaign. Andy has marketed Skype hardware for the SMB market, so he sees the money sitting on the table if only Skype takes up the SMB challenge.
Andy is right about the opportunities but I don’t think it’s an either/or choice. Skype has to act now if it want’s enterprises to contribute 20% of profits by 2014. Skype has to craft new products and brand identity for SMBs if it wants universal adoption as the workplace communication tool of choice ahead of Microsoft, Google, Facebook, IBM or Cisco.
Skype’s greatest workplace challenge is to learn how to be more valuable than a communications medium. Skype needs to become a utility that helps people find work, advance their careers, get their jobs done better, sell things, make things, innovate and otherwise get stuff done. Right now Skype doesn’t help those things any more than your mobile phone does.
All of this comes to brand and identity: What is Skype? What is Skype to you? Do you love Skype, need Skype, or fear Skype? Skype needs its own answers and to reposition itself in the world’s hearts and minds.
So back to Andy’s first point, Skype really needs time to think, adjust, and focus more than its investors need liquidity.
CORRECTION: I wrote Andy was now working for a Skype-related hardware company; he was, but he isn’t now. Andy skyped me “there is no effort by Skype to get the small business engaged. It’s all individuals or enterprise, leaving the small business market for someone else to take over.”
First off, 
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