Microsoft Corp. (Nasdaq: MSFT) shelled out $8.5 billion on Skype Ltd. in large part to help its new line of Windows Phone 7 devices compete in the smartphone operating system battle. (See Microsoft to Buy Skype for $8.5B and Skype Gives Microsoft a Much Stronger Voice.)
Skype will let Microsoft build a real-time voice and video communications platform into future WP7 and Nokia Corp. (NYSE: NOK) smartphones. For consumers, this means a native video chat platform that could potentially tie directly into the handset's dialer or be offered at no extra cost to consumers.
Microsoft CEO Steve Ballmer touted the potential for video chat, which currently accounts for more than 40 percent of Skype use, on Windows Phone, during a conference call Tuesday.
"Data, voice, video, IM all on a single screen, rather it’s a smartphone, PC, slate or the TV," Ballmer said of the goal of the merger. "Microsoft and Skype together will define this future and what it really looks like."
Skype CEO Tony Bates, who will head up the new Skype division at Microsoft, reiterated that mobile is about rich communications beyond just voice. He said the companies plan to enhance two-way video chat for Microsoft, but will continue to support it on Android and the iPhone as well.
What they say
As GigaOm points out, Microsoft has lacked a competitive response to Apple Inc. (Nasdaq: AAPL)'s FaceTime and Google (Nasdaq: GOOG)'s video chat apps. A service like this for Microsoft would put it on equal footing and could also lead to value-added services and revenue generators for Microsoft and the wireless operators.
That is, if the operators are open to it. The Wall Street Journal believes this will be one area of difficulty, something that Ballmer acknowledged on the conference call. "Skype presents a challenge to their business, but Microsoft wants to keep carriers happy so they'll sell its phones," The WSJ
commented in a live blog of the call.
Guardian Technology Editor Charles Arthur went further to say that the carriers would hate it because it turns phones into a peer-to-peer network, routing data for lots of devices. If consumers leave Skype running, even while not in use, the levels of bandwidth sucked up will skyrocket.
"Given that Microsoft's Windows Phone is going to become the mobile OS for Nokia, the world's biggest handset maker (by volume, if no longer in revenue) is going to have some carriers feeling distinctly edgy this morning," Arthur wrote.
Ballmer said this will be a particular area of focus as the companies work through the regulatory process, and Bates noted that Skype has been working hard on developing carrier relationships.
What we say
While wireless operators haven't always embraced voice-over-IP services like Skype, that has changed in recent years. Tighter integration between Windows Phones and the VoIP service could bring upside for Microsoft's carrier partners, but it will no doubt bring some challenges, including a new wave of data deluge.
Light Reading Mobile will continue to cover the implications of the Microsoft-Skype tie up going forward. Check below for our first takes on the news.
— Sarah Reedy, Senior Reporter, Light Reading Mobile
