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The Skype Deal -- Buying more love |
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Date: Sat, 14 May 2011 09:33:59 +1000One thing we know that Microsoft has ... Is Money! ... Lots of MONEY! ... And now, having just purchased Skype for $8.5 billion, Microsoft will have a little less money. Considering the economic performance of Skype, the deal has been negotiated for strategic not economic reasons. When it broke, the story generated the usual speculation in the blogosphere - "How significant is it", "What does it all mean?" ... For Communications and IT and for us consumers in general ... It seems like a radical move, but Microsoft has tried to buy market share before ... |
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Endgame: Noun: The final stage of a game such as chess or bridge, when few pieces or cards remain. The final stages of an extended process of negotiation.
The strategists at Microsoft probably hope that the combination of the world's most popular operating system, office productivity suite, smart-phone, game-console, instant messaging and search engine with an emerging and potentially disruptive voice over IP technology could become an almost unstoppable 21st century juggernaut. And there's no doubt that the modern social networking milieu when combined with a disciplined policy of systems integration certainly could produce just such a juggernaut! But is Microsoft the type of organisation that can carry out such integration?
In fact, this recent takeover is only the latest in a long line of many attempts to buy market share. Some of them have been acquisitions and some of them have been direct transfers of large amounts of moolah! And not many of them have gone well:
- Yahoo Part 1: In 2008, after pursuing Yahoo for almost
three years, Microsoft attempted a takeover, making an offer of around $45
billion. It would have been one of the biggest takeovers in history, and
had it proceeded, probably would have caused considerable damage to
Microsoft's long-term economic viability. Microsoft were saved from this
supreme folly by the intransigence of Gerry Yang, who it seemed, would
have much rather been buried at sea than been taken over by Microsoft. He
boldly (and foolishly) blocked the incredibly generous Microsoft offer.
- Danger: Also in 2008, Microsoft acquired a company,
appropriately named Danger Inc, for a price which was rumoured to
be a modest half a billion dollars. The plan was to integrate the product
Sidekick into Microsoft's mobile platform. As usual Microsoft changed all
of the infrastructure to use Windows ... A year later, after it had been
migrated to a Microsoft data centre, there was a systems failure which
resulted in many users losing their data. It took two months to restore
and some users never recovered their data.
- Cashback: 2008, was a busy year for Microsoft, because
they also launched Cashback, an ill-conceived project to buy customers for
their search engine "Live Search" which they re-badged with the name Bing,
in the forlorn hope that such a name might persuade consumers to adopt it
as a "verb" (like "google"). Cashback, never the most sane plan devised by
an American corporation, became nothing more than a loony scheme to "burn
money". As a result Bing gained the dubious distinction of being the
search engine that was so bad, consumers wouldn't adopt it even if they
were paid to use it. (Admittedly that analysis is a trifle unfair --
Since consumer choices, as ever, are influenced more by fashion than by
reason).
- Yahoo Part 2: Eventually in 2009, Microsoft did a deal
with Yahoo that involved Microsoft taking over all of Yahoo's Internet
search. Since the deal, the popularity of Yahoo has declined as has the
traffic referred from their sites. So far there has been no dramatic
improvement for Bing.
- Nokia: Earlier this year, Microsoft cut a deal (that involved an undisclosed bundle of money) with Nokia. This was because of the extraordinary poor performance of their Windows Phone Seven platform. Since the deal, Nokia's market share has declined sharply, and to date, consumers have shown a marked preference for mobile devices other than Windows Seven phones.
It seems cruel but fair to say that most of these attempts to "buy market share" have not been the type of success stories that Microsoft hoped they would be. The Skype deal is big ... But not when compared to the proposed Yahoo deal, which in its original part one version could have been a revenue and fiscal disaster for Microsoft.
When technologies are emerging and investors and organisations jostle for position in an "Opening Game", savvy acquisitions can pay dividends later, when the technology matures. However Skype is not an entirely new technology. And there are alternatives. Could this be the "End Game" rather than the "Opening Game"? Certainly E-bay think that they paid too much for Skype ... And yet they paid only a quarter of what Microsoft has just offered. (Although some estimates put the price at about 40% of what Microsoft is currently offering) ... Nevertheless Microsoft's offer is a very generous one ... Could it be too generous?
And as your blogger has humbly opined on many occasions, Microsoft is a giant with feet of clay. Windows, which many commentators perceive as their greatest strength, is their greatest weakness. The poor performance and security of the operating system mean that it is not a good choice to be the core component for any serious large scale integration project. In most of the projects that Microsoft has attempted in recent years they have rolled out their own technology, replacing existing systems, and demonstrating faith in, and commitment to their own product, which is kinda cute, endearing but sadly misplaced. Many of these projects have not fared well because of that very technology. The exception being Cashback which failed because it was just plain crazy.
It is true that Skype is an important technology company. The engineers who work for Skype have a reputation as good as any. And the technology has been widely adopted. It also has the possibility to loosen carriers' strangle hold on the throat of the unfortunate mobile consumer ... But is Microsoft the right company to integrate this product and truly commoditise the delivery of mobile bandwidth? Or will the Microsoft purchase be the kiss of death for Skype as it appears to have been for many Microsoft acquisitions.
Well those, dear reader are the questions we are all asking and only time will tell us the answer. And your blogger will continue to blog, with humility, on this topic as it develops.