VoIP Rush: Microsoft Buys Teleo, News Corp to Buy Skype, Vonage IPO? (MSFT, NWS)

by: David Jackson

Following Google's launch of Google Talk, Microsoft (ticker: MSFT) last night announced that it has acquired voice over IP (VoIP) company Teleo for an undisclosed sum.

Teleo's web site (now switched to a Microsoft domain) describes its product as follows:

Teleo allowed customers to use their PC to make VoIP calls to cell phones, regular phone or PCs. Through its integration with Microsoft Outlook and Internet Explorer, the Teleo service also facilitated “click to call�? dialling of any telephone number that appears on screen – such as within a Web site, search results or e-mail.

News.com quotes Microsoft's communication services lead product manager:

“We’ve been making a lot of investments in voice, but as we looked at continuing…we had that build or buy discussion,�? said Brooke Richardson, lead product manager for MSN’s communication services division. “We decided that if we wanted to do things rapidly, Teleo was a good fit.�?

Bambi Francisco comments:

While Microsoft already offers VoIP calling via its MSN messaging client, San Francisco-based Teleo, through its integration with Microsoft's Outlook email client and Explorer browser, is designed to facilitate "click-to-call" dialing of any number that appears on a Web site, off search results or in email.

Om Malik:

Over a long term, these announcements add to what is continuing trend that is commoditization of voice. If Vonage introduced the phone world to flat rate plans, then Skype was largely responsible for micro-slicing the phone revenues. Voice over IM takes it one step further. Makes voice free! Yahoo and MSN hope this translates into consumer stickiness, while Google, one day hopes to attack contextual advertising to their voice. (And some day they want the voice IP stream to be searchable just like text.)

Paul Kedrosky, meanwhile, highlights "two nifty telecom factoids from a new OECD report":

  • In 2003, for the first time ever, the number of fixed phone lines actually fell in OECD countries, with mobile operators gaining market share at the expense of the traditional telecoms companies, a trend which continued in 2004 and 2005.
  • A comparison of the cost of calls via Skype, a VoIP provider, and via traditional fixed-line carriers in OECD countries revealed an average saving of 80% using Skype, according to the OECD report.

Quick comments:

  1. This is the right strategy for Microsoft to compete with Internet/VoIP companies Google (ticker: GOOG), Skype, and Yahoo (ticker: YHOO: YHOO). Namely, integrate next-generation functionality into Microsoft's already ubiquitous desktop software. This fight will not be plain sailing for Microsoft's competitors.
  2. Erik Lagerway claims that News Corp (ticker: NWS) is "in... alleged talks with VoIP provider Skype". Skype would probably fit the demographics and user patters of News Corps' MTV viewers and recently acquired MySpace users.
  3. The Daily Deal report reports that VoIP telco Vonage is planning a Fall IPO to raise $600 million.
  4. VoIP is clearly gaining rapid momentum, with the VoiP players now focusing on calls to mobile and fixed-line phones. (Note the analysis of Google's product plans here.) I'm baffled that telecom investors haven't begun to panic yet. Strip out voice and yellow pages profits, and the Baby Bells aren't left with much. (Full disclosure: I'm short VZ and own LEAP puts on BLS, SBC and VZ.)

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