Wednesday 11 May 2011

Skype's buyout: The end of free web calls?


Yesterday, Microsoft stunned the technology world by announcing it had bought up internet video chat company Skype for an eye-watering $8.5billion.

That's a lot of dollars. Enough to buy about a squillion M&Ms, according to some rough maths.

Skype, though, is a free service which makes very little money. Its only source of income is from a few small adverts placed in its side panel.

So why has the American tech giant spent so much cash on a company which produces free software? And more importantly, does this mean the end for Skype as we know it?

Currently, Skype is available on all platforms - including Apple's iPhone and Google's Android products. While Microsoft would be crazy to suddenly block all competitors, we can surely expect that the best new features will come to Microsoft's much-vaunted, much-overlooked Windows Phone first. Perhaps some features might even stay exclusive to Windows PCs and mobiles.

Non-Windows users' losses are Xbox players' gains, of course. Skype represents a great opportunity to add another string to Xbox's bow - video calls over Kinect, with voice control, is a perfect example of the different features of the games console coming together to offer something exciting.

And then of course there's Live Messenger, the age-old instant chat service once known as MSN. While it has been offering free video calls for years, it would be a big suprise if Microsoft didn't work in the Skype experience (which has always bested Bill Gates' program) into its software. We might even see Skype calls from inside Hotmail, in much the same way that the company has started working in a light, free version of Office into its email service for all users, regardless of whether they own the full suite. This image shows off quite well what Microsoft has in mind for the service in terms of merging it into its own offerings:

All of this is very nice and happy, but the acquisition could mean trouble ahead for non Windows Skype users. Should Microsoft try too hard to monetise Skype, they could find the people flocking to another service, whilst excluding Apple and Android users from any future features could see Skype's marketshare dwindle at a time Microsoft need it to start making real money.

On that subject; Microsoft might try to split the market, offering a free version with very low quality video, stripped down to the basics, and a pay-per-use version with all the bells and whistles.

Equally, they could ram the service with adverts. Imagine having to watch an ad for Burger King every time you rang your girlfriend, or sit through a very loud, very long Call of Duty trailer just to ask your mum how to cook an omelette. There could even be ads during calls: "We interrupt this heartfelt apology to the love of your life to bring you this important message: Have you had an accident at work?".

As the immortal line in the Social Network goes, at the moment, it's cool. Start throwing ads around and it's no longer a party.

Microsoft has to tread very carefully not to ruin a great service by desperately trying to squeeze money from it, nor anger users on non-Windows devices by treating them as second class.

The reality is, Microsoft's acquisition of Skype smacks of desperation. Unable to capture the market themselves, or perhaps wracked with paranoia that cooler, hipper Google or Apple were going to snap Skype up and rule the world, they jerked their knee and opened their wallet just to spite their competitors.

For Microsoft, it looks almost a lose-lose situation. Keep Skype the same and they'll never get back their investment. Change it too much and they risk alienating the users and, er, never getting back their investment.

Play it right, though, and Skype could be the cornerstone of Microsoft's latest assault on the market, taking a bite out of Apple and helping Windows Phone and Xbox to scale new heights.

Just dont ruin Skype please Bill. Unlike Windows Phone, it's quite good at the moment.

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