Why Microsoft’s Buyout of Skype Changes the Mobile Game

Skype Technologies S.A. logo

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When Microsoft almost bought Yahoo, I yawned. When they signed the exclusivity deal with Nokia for Windows Phone 7, I laughed. But now that they are nearing a deal to buy Skype, they have my full attention!

Google and Facebook must by crying in their pillow. With this purchase, Microsoft has purchased a social network, a telco, and a money-printing machine.

Skype 2.2, running on a Windows Mobile 6 device

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Skype the Social Network

People don’t speak of Skype in the same breath as Facebook or Twitter, but perhaps they should. Skype is not just a social network, it’s a damn lucrative one. As users communicate with each other via instant messaging, conference calls, and video chat, they do while spending real world currency.

There were 663 million Skype accounts in 2009. By contrast, Facebook reached a 500 million in 2010. Skype might not have the hype, but it definitely has the numbers.

Skype the Telco

AT&T recently bought T-Mobile for $49 billion. And while Skype, strictly speaking is nowhere in the same league as either of them, it has one advantage. Namely, it is a telephone provider that can work over any carrier’s data pipes.

Are you almost out of cell phone minutes? Do you have 6GB of bandwidth to spend? Here’s a chance to bypass obscene voice overage rates.

Oh hey, did I mention Skype works on all carriers and smartphone operating systems? What a great way for Microsoft to find a presence everywhere.

Polycom

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Skype the Money Printing Machine

Yes, Skype has produced little net profit for the eight years of its existence. Last year, it posted a loss of $7 million on revenue of $860 million. Don’t let that fool you.

Telephony is a multi-trillion dollar business, and Carlos Slim, the richest man in the world, has made his fortune on it. VoIP (a.k.a., “Voice Over Internet”) is a microscopic fraction of it, but traditional telephone providers have had over a century to develop their business. Skype, by contrast, has had lass than a decade to go at it.

Once VoIP is further finetuned as a legitimate alternative to traditional telephony, Skype will become the equivalent of a money-printing machine. In fact, since it is the only VoIP firm in mass usage, perhaps this day will come very soon.

And with $8 billion, Microsoft will have made its most lucrative and strategic purchase in its history.

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Has Microsoft made Peace with Open Source? #webnotwar

Nissan Cube

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“If Microsoft is the Borg, then you are Locutus,” said an audience member to the Microsoft employee on the open source panel, “And just as Locutus boarded the Enterprise to learn about humans so as to assimilate them, you are here to assimilate then extinguish open source.”

At typical open source conferences, such sentiments are predictable. Except, Make Web Not War is Microsoft’s own open source conference. They spent significant time and energy attracting Vancouver’s tech hordes to it.

But Microsoft let themselves be vulnerable to criticism.

Closeup of a stone sign bearing the Microsoft ...

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Why the hostility?

Some attendees of the conference didn’t understand why open source enthusiasts were hostile towards Microsoft. But Microsoft has not been kind to the open source movement. Between the infamous Halloween Documents and their dubious involvement in the SCO-Linux controversies, Microsoft has spent 15 years creating a hostile environment.

Organizers of Make Web Not War admitted this. “We’ve done everything to make the open source community hate us,” said a Microsoftie to me, “But we’re no hivemind. Humans live in Redmond, and we love technology for its own sake.”

Calling a truce

Nick Gargusha, Microsoft’s Open Source Strategy Lead, states their foray into open source “just makes good business sense”. But I don’t buy it (pun intended). The days of “Microsoft only” shops are ending. More corporations run LAMP stacks, and more employees are opt for iPhone and Androids.

Microsoft must evolve or die. Open source is no longer the future, it is “the now” — and “now” has been happening for years now. If Microsoft ignores open source, competitors like Google and Apple will swoop in and steal developer mindshare. In fact, they already have.

Steve Ballmer gaming

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Laying down arms

One irony of Make Web Not War was the plethora of MacBook Pros dotting the landscape. The few Windows users in attendance had Android stickers plastered on their laptop lids. For better or worse, Apple and Google have won the hearts and minds of developers — developers who had exclusively coded for Microsoft platforms 10 years ago.

But is there a need for Microsoft anymore? Certainly. Far more than Apple or Google, Microsoft is the company that balances usability and customizability. Anyone who has used an Xbox 360 or a Zune understands this. But to win back mindshare, Microsoft needs developers.

How did Apple and Google win developer mindshare in the first place? Both used open source to hook them. For this reason, Microsoft has ceased their war against open source, laid down their arms, and embraced the future.

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