Back in 2005, when eBay snapped up Skype for US$2.5 billion from under the noses of the likes of Google, the VoIP pioneer was viewed as a dangerous disruptor in the telecoms industry. The Swedish start-up (then only two years old) was already stealing significant business from the fixed-line players, and mobile had every reason to think it was next. This was the height of the ‘bit pipe’ paranoia, and many nervous mobile operators had already moved to ban VoIP traffic across their networks in a bid to protect their core voice income. If Microsoft had acquired Skype then rather than now, the mobile industry would’ve been in full-blown crisis mode. Just how disruptive could Skype become now that it had the mighty Redmond software giant signing off its cheques?

But times have changed and Microsoft’s US$8.5 billion acquisition of Skype this week will not lead to plummeting telco stocks. This is partly due to the fact that both firms are in weakened positions from five years ago. eBay jettisoned most of Skype after failing to find a home for it (writing down the asset to the tune of US$1.4 billion in the process), and Skype has since failed to turn its sizable customer base into a profitable business. Plus, it has not really come close to replicating its desktop PC success in mobile. Microsoft, meanwhile, has suffered numerous embarrassing failures in its attempts to break into online services and the jury is still out on whether its re-launched Windows Phone OS will prove a success. Over the same period, the mobile industry has evolved out of all recognition: Skype may have been a disruptive business model five years ago, now it’s just another app.

Nevertheless, this is a big deal for Microsoft (indeed, the largest in its 37 year history). Unlike the ill-fated eBay union, Skype does at least appear a tailor-made solution that would add connectivity to a range of existing Microsoft products, notably its Xbox and Kinect gaming systems – and possibly even its ubiquitous Office suite. And yet the most natural home for Skype at Microsoft – within Windows Phone – could create some issues for Microsoft’s mobile ambitions unless it’s handled with sensitivity.

Here’s why. When Microsoft and Nokia announced their intention earlier this year to create a third mobile ecosystem to challenge Android and Apple, they talked up the wider benefits this would create for the community – not least the fact that it meant operators would not need to be overly reliant on Apple and Google. Microsoft CEO Steve Ballmer even used his keynote address in Barcelona to declare Windows Phone 7 as “the most operator-friendly platform available.” The Skype deal risks disrupting this love-in. While Skype is not seen as the threat it once was, operators are still unlikely to be too enthused about carrying devices with deeply-integrated Skype that can cannibalise voice and video call minutes.  

Another issue – as noted by Dean Bubley over at Disruptive Wireless – concerns the timing of the Microsoft/Skype deal in relation to the migration towards 4G networks such as LTE. With voice-over-4G services still an issue for many operators, Microsoft has the opportunity to use Skype’s scale and heritage to provide a de facto 4G voice standard, potentially creating a serious challenger to operator-led initiatives such as VoLTE.

So the Skype deal has the potential to reposition Microsoft within the mobile industry. It just needs to be careful not to become less of a friend and more of a threat.

Matt Ablott

The editorial views expressed in this article are solely those of the author(s) and will not necessarily reflect the views of the GSMA, its Members or Associate Members