Skype Deal: Collaboration Is Microsoft's Game To Lose
Microsoft’s $8.5 billion deal to buy Skype shows it building around its strength in enterprise collaboration software. But will it squander its advantage?
Microsoft can be maddeningly slow when it comes to jumping on business technology trends -- witness its glacial response to tablets. But in cloud-based collaboration, Microsoft's actions, such as its just announced deal to acquire online video and voice communication provider Skype, suggest it has the right sense of urgency.
By laying out $8.5 billion for Skype--a company eBay paid $2.6 billion for in 2005, then sold a 65% stake to a private equity group led by Silver Lake at a valuation of $2.75 billion in 2009--Microsoft is sparing no expense to augment its already formidable collaboration arsenal, which includes Exchange email, SharePoint platform, and its Lync instant messaging, video conferencing, and online meeting. Microsoft holds the clear market lead in enterprise collaboration software, and if it squanders that lead, it has only itself to blame.
CIOs en masse want out of the business of running email systems. They’re considering new cloud-based alternatives, including Google Apps, which combines online email, word processing, spreadsheet, and other apps. Even CIOs in highly regulated, security-conscious, control-oriented industries are exploring cloud options, even if they're wary of making the leap.
But with Exchange and SharePoint, which has become the center of thousands of companies' ad hoc collaboration, including web pages devoted to document-sharing around projects, Microsoft is well entrenched. And it has moved steadily into the cloud, first with its BPOS suite of online Exhange and SharePoint, and soon with its more expansive Office 365. One selling point for Microsoft is that companies know that if they become dissatisfied with Microsoft as a service provider, they can switch to running Exchange and SharePoint in a third-party data center, or in their own data center (though after some painful transition effort and cost).
At the same time as this cloud shift is happening, employees are demanding more from their collaboration platforms, and they aren't waiting around for the IT department to give them what they need. Microsoft has its own voice-over-IP and video offerings, but Skype fills a hole in Microsoft's collaboration lineup in terms of easy-to-use voice and video used on a massive scale. Skype claims more than 100 million users, and it lets people make a video connection with anyone who has downloaded Skype--such as a supplier who isn't on the company's video network, or your kids back home while you're traveling.
Microsoft CEO Steve Ballmer made clear that this bridge Skype offers between personal and business lives is a major asset. "Enterprises want a level of control, but on the other hand people want to talk to partners and suppliers outside the four walls of their company, and with their family and friends," Ballmer said during a press conference.
In today's market, if a company's IT team doesn't meet a collaboration need, employees will just go get what they need on the Web, whether it’s Skype or some other free service. Microsoft's challenge in the enterprise will be to keep that freedom that people expect from Skype, while giving companies that control they feel they need.
Jason Maynard, an equity analyst for Wells Fargo (and an InformationWeek editorial advisory board member), said in a research note early this morning that the Skype deal should help Microsoft in its competition with Apple and Google, whose more consumer-centric collaboration tools are showing up in a lot of offices. Writes Maynard:
"We like the potential of this transaction as it brings Microsoft a very strategic enabling technology that could help its Windows Mobile platform, improve its collaboration positioning, and ultimately be their way forward for video and voice communications on the web. From a competitive standpoint, it gives Microsoft an answer to Google's Google Voice service and Apple's Facetime platform. The WSJ has reported that both Google and Facebook were potential suitors for Skype. Given Microsoft's investment and cozy partnership with Facebook, we think it would make incredible sense for the two firms to collaborate in the communications arena."
One year ago, Microsoft CEO Steve Ballmer told InformationWeek editors that the company was seeing a "hockey stick" growth mode for cloud computing, particularly when it came to adoption of collaboration apps. Ballmer said that moving to the cloud would mark a change to Microsoft's business model: It would provide more services to customers, even as it earned lower profit margins than it had on licensed software.
The Skype deal shows Ballmer acting on those beliefs. Microsoft is playing from behind in a number of vital markets. Not in enterprise collaboration. It will face plenty of tough competitors, but its Microsoft's game to lose.
SaaS As Innovation Driver?Software as a service is the clear No. 1 way enterprises consume cloud. InformationWeek's SaaS Innovation Survey reveals three tips to get the most from SaaS: Make it a popularity contest. Have an escape plan. And remember that identity is the new perimeter.
Top IT Trends to Watch in Financial ServicesIT pros at banks, investment houses, insurance companies, and other financial services organizations are focused on a range of issues, from peer-to-peer lending to cybersecurity to performance, agility, and compliance. It all matters.
Join us for a roundup of the top stories on InformationWeek.com for the week of September 18, 2016. We'll be talking with the InformationWeek.com editors and correspondents who brought you the top stories of the week to get the "story behind the story."