Microsoft Acquiring Skype: Winner or Loser?
ddines's Blog
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This was originally posted at acgresearch.blogspot.com/2011/05/microsoft-acquires-skype-winner-or.html.
It was not a surprise to anyone when Microsoft announced today that it was buying Skype for $8.5B. Based on reading the volumes already written about the deal in the blogosphere and the general press, there is general agreement that Microsoft paid too much in an effort to keep Skype out of Google’s hands, but little
It was not a surprise to anyone when Microsoft announced today that it was buying Skype for $8.5B. Based on reading the volumes already written about the deal in the blogosphere and the general press, there is general agreement that Microsoft paid too much in an effort to keep Skype out of Google’s hands, but little
I see three possible scenarios for this deal:
Clear Loser - Where customers and revenues shrink, market share declines sharply and profits are elusive. This would be the result of micromanaging the product, ignoring customer feedback, adding worthless features, insisting that developers to force fit Microsoft technology into the product, devising confusing bundles, and finally, overcharging. There are very low barriers for customers to switch services, so this is a distinct possibility if they get fed up with Microsoft.
Clear Winner - where revenue and market share continue to grow, and it turns a healthy profit. This would be the outcome of Microsoft making smart moves: allowing it to operate independently, providing the capital and marketing muscle to grow the business, providing new growth outlets (for example, Xbox/STB integration) and discovering profitable business models.
“Walking wounded” - where the service grows modestly, and makes some money but does not outpace the market.
Clear Loser - Where customers and revenues shrink, market share declines sharply and profits are elusive. This would be the result of micromanaging the product, ignoring customer feedback, adding worthless features, insisting that developers to force fit Microsoft technology into the product, devising confusing bundles, and finally, overcharging. There are very low barriers for customers to switch services, so this is a distinct possibility if they get fed up with Microsoft.
Clear Winner - where revenue and market share continue to grow, and it turns a healthy profit. This would be the outcome of Microsoft making smart moves: allowing it to operate independently, providing the capital and marketing muscle to grow the business, providing new growth outlets (for example, Xbox/STB integration) and discovering profitable business models.
“Walking wounded” - where the service grows modestly, and makes some money but does not outpace the market.
The “walking wounded” scenario has the highest probability for a number of reasons. Skype has good brand recognition and loyal customers (for the free service anyway) who will continue to use the service as long as it remains free. Microsoft has interesting opportunities such as embedding Skype into the Xbox to deliver an integrated voice/video gateway for the home, or integrating enterprise UC systems with Skype. It may capitalize on one of these opportunities, but will unlikely run away with the market. Even though Microsoft has a track record of mishandling acquisitions, squashing innovations, and misreading the online market, it is learning from mistakes and is unlikely to make fatal decisions. Though, I seriously doubt that it is capable of developing a profitable online business model.
Bottom line, if my prediction is right and Skype limps along in the profit area, then Microsoft made a bunch of wealthy people in Silicon Valley a lot wealthier at the expense of its shareholders.
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