The acquisition of Skype puts Microsoft into a commanding position in the consumer UC as a service market. To date, Microsoft has had little to say when Skype, Yahoo, AIM and others talked about enabling IM and adding voice and video. Their Microsoft Messenger voice services were less well known and less widely adopted. Today, Microsoft turned the tables, paying $8.5 billion to acquire Skype and its 170 million customers who value the “free” in free voice/video services so highly that they are willing to accept variability in quality of service and a service level agreement that specifically spells out, “Skype cannot guarantee that You will always be able to communicate with other Skype Software users, nor can Skype guarantee that You can communicate without disruptions, delays or communication-related flaws or that all Your communication shall always be delivered to other Skype Software users. Skype will not be liable for any such disruptions, delays or other omissions in any communication experienced when using Skype Software.” So, what did Microsoft get?

·         170 million customers whose online communications connections were one of the first social communications communities, and who are loyal to the Skype experience

·         A worldwide peer-to-peer network that is proving increasingly able to deliver usable voice and video streams to PCs and increasingly mobile devices

·         A portfolio of P2P technology media encoding algorithms with proprietary, non-public specifications

·         A run-rate business that generated $860 million in 2010 revenue (with a net loss of $7 million) for three-way video calling, business admin features, and SkypeIn and SkypeOut connections to the PSTN

So why would Microsoft pay $8.5 billion, more than it could reasonably expect to recoup from the business as currently structured? In order to make this acquisition make sense for Microsoft’s shareholders who want to see profitable growth, Microsoft must find a way to move Skype beyond an ancillary solutions for business communications (see my July 2007 report, "Free VoIP For Business — What’s Not to Like?”) that  many users see as a cheap alternative for voice and video communications, to a profitable, global peer-to-peer media delivery engine. Microsoft must:

·         Continue to serve the existing customer base with the free service they have come to love and expect or risk the continuity of the global peer to peer network they have acquired.

·         Leverage the juggernaut that is Microsoft’s near-ubiquitous desktop presence to increase the reliability of that peer-to-peer network.

·         Re-engineer and make public the codecs and routing logic that make the service work, so as to at least claim the mantle of public (even if not industry standard) interoperability – perhaps even combining the capabilities of Silverlight and Skype to make both more capable, efficient, and cost effective.

·         Define the new businesses that can leverage this P2P network to deliver profitable paid services – something like a paid video-on-demand service, or reducing the cost of delivery of voice and video on Xbox LIVE.

At the end of the day, I am not convinced that Microsoft can make money with this acquisition (the list of "must do’s" is long and difficult), but I do see some value in the global peer-to-peer media delivery network that Skype’s user base represents. While the introduction of Skype’s proprietary intellectual property into Microsoft’s voice and video services will only add fuel to the fire of Microsoft critics who claim that Microsoft is developing and delivering pseudo-open solutions that serve as barriers to make it more difficult and expensive for existing customers to switch to or use alternative providers, the extension of Skype’s peer-to-peer network onto Microsoft’s footprint of wired and wireless computers, smartphones, and game consoles can fundamentally change the reliability of that peer-to-peer network and create new opportunities.

I’d be curious to hear from existing Skype users – Are you more or less likely to continue to use Skype with Microsoft as the owner . . . or are you indifferent so long as the service stays the same?