It was in the local paper today, Microsoft is buying a verb. It’s hard for me to comment here as I will be the first to say grammar was never my grade school strength. It was that stretch during the school day where I resigned myself to be bored. But thanks to Google it is now a core part of every major tech companies strategy. We must have a strategy that adds to the English language. Screw our partners the only partnership that matters is a partnership with Webster’s.  It’s the largest deal in Microsoft history so I am forced to address my youthful loathing and attempt to confront my greatest weakness.

The acquisition by Microsoft of Skype was largely driven by consumer behavior and the desire (in my opinion) to have a likable consumer face.  It is also great technology that has matured and been around for a long time (by tech standards). There are a lot of people and companies who actively use Skype for voice over IP communications.  It is one of those technologies if we are not using it today we can safely say we will be using it in the not so distant future.  If it can be done digitally, it will.  It is also popular with over 145 million subscribers, in particular in Europe where traditional lanline phone services are very expensive.  Beyond a large user base it seems a purchase with color or as it is called at Microsoft, life beyond beige.

A successful acquisition for Microsoft at this stage of the game is important.  Otherwise it will just prove the skeptics correct.  Many Wall Street analysts are saying it’s a bolt on solution, the real value in Skype is past its due date and why did Microsoft not buy this 10 years ago when it was just bursting onto the scene (and was much cheaper…eBay paid $2.7 billion while Microsoft paid $8.5 billion).  The last point I cannot fault.  Had they done this ten years ago it would have displayed a vision for the future.  By doing now they are just validating the future.

Still I believe there is tremendous upside should my former employer to do this right.  With Skype comes a lot of phone numbers and seamless integration into XBOX or the enterprise would be huge.  Also the upcoming Nokia Phones with Windows Phone 7  (or later) could provide a nice marketing opportunity to drive interest in the Microsoft Mobile platform.  Though XBOX has live chat today and video camera’s this could expand the base.  A question here is how many of Skyp’s 145 million users are gamers?  Based on that question this seems for XBOX more a technology play, I do not see this about driving XBOX adoption.  But with XBOX becoming more of a home media center integrating cool voice/video capabilities has its merits.

What could derail this?  Politics. Brain drain.  The first is internal to Microsoft but could affect the latter.  With Skype comes a lot of talent, now granted the good new here is it’s not all about the talent (which was major reason to buy Yahoo! for $35 billion, good thing that did not pan out).  Still retaining the key engineers who built up Skype and are loyal to Skype cannot be underestimated.  For too long now Microsoft has been losing the true creators of technology at Microsoft.  The people who built a business and wore Microsoft on their sleeve.  Once it’s handed off to those with no history it is just a business and the passion that built the breakthroughs is gone.  One thing about the tech sector, you had better have passion for what you are doing, otherwise save us all time and go home.

The biggest challenge will be integration, which over the last 10-15 years has been an Achilles heal for Microsoft. Starting with WebTV, through Navision and Great Plains to Danger,  aQuantive, all seemed like great acquisitions at the time they have just had trouble finding a home (ok I will come clean…I never got the Danger purchase).  With Skype the two likely places for the technology to land will be in the Microsoft enterprise solution, Office Communicator and it will make its way into XBOX.    I will add both products and technologies I really like.  The challenge could be more organizationally as they operate under two entirely different divisions at Microsoft.  Microsoft has long had the idea of integrated innovation and I do mean idea.  Sharing technology across organizations at Microsoft has proved far more challenging than the dreamy memo’s from Bill Gates originally suggested.  Internally Skype may have to be split up across groups.   The last point is interesting in that in the announcement a new business division was being created at Microsoft specifically for Skype.  But as has been pointed out the technology Skype brings is being eyed by multiple other groups at Microsoft.  I can only guess this was a part of the deal to help ease transition.  The tech industry is not a patient industry.

Buying a verb is an odd strategy, though as stated it has its technical merits.  But of late Microsoft seems to be doing odd things.  The partnership with Nokia to standardize on Windows Phone 7, getting RIM to use Bing as the default search engine for their mobile devices, and now buying Skype. I get the sense reading the blogs and talking with old colleagues, is people are frustrated with deals being done out of desperation and not a clear vision of the future.   The future used to be a divine right, now it seems a distant star.  Also so many of the things Skype is bringing our already being dome within various Microsoft products – why not invest a few billion in a significant marketing campaign?  It seems like  it would save some money and as a shareholder I may get angry about all this, but for now I am just going to try to identify the verb in this sentence…for free.

Good Night and Good Luck

Hans Henrik Hoffmann May 12, 2011