Microsoft and Skype Threaten Service Providers, but Regulators Will Be Watching

G. Barton

G. Barton

Summary Bullets:         

  • Microsoft has yet to show that it knows how to make the most out of the opportunities from its acquisition of Skype.
  • Microsoft has the potential to take voice revenue and customers from service providers, but regulators will be watching.

Microsoft’s $8.5 billion dollar acquisition of Skype has added a threatening new dimension to the software giant’s role in the communications market.  On the surface, the decision seems natural for a vendor that has strongly promoted software-based IP telephony as a better alternative to PBXs.  Services such as FMC and UC are proving effective as hosted solutions and showing a natural affinity for cloud-based delivery, which suggests that Microsoft is on to a winner.  The obvious model is for Microsoft to embed Skype into Lync/Office 365, and even potentially into future iterations of its desktop/laptop and mobile Windows operating systems.  Other vendors (e.g., BT’s Onevoice Anywhere solution) have demonstrated the cost-saving potential of driving voice calls over the corporate VPN via WiFi either through a softphone or a SIP client on a smartphone.  Microsoft could use Skype In/Skype Out to handle PSTN interconnection and keep all calls between Skype clients off the PSTN.  Skype can assign phone numbers and simultaneous call volume; Microsoft software can distribute basic calling or complex IP PBX functions (via Office365) throughout the organisation.  Office 365’s popularity among businesses as a solution attracts numerous carriers globally, including the majority of European incumbents and mobile operators such as Vodafone.  Skype will also strengthen Microsoft’s capability to offer voice- and video-enabled messaging and collaboration applications to business customers.

However, all is not necessarily peachy for Microsoft.  The usual accusations against softphones in general and Skype in particular have focussed on call quality and security.  However, Skype has proven to be a tremendously successful over-the-top voice and video application with consumers, and it has high usage in businesses despite the lack of enterprise-grade security and reliability provisions.  However, there are plenty of other pitfalls that could hamper Microsoft’s ambitions.  Firstly, Microsoft has not yet detailed how it will integrate Skype with Lync Online, and it is difficult to see how it would be done.  Lync Online is offered to businesses for a price; Skype is offered to both consumers and businesses as a basic, free version, with charges for add-ons or business features.  It would be possible for Microsoft to position Skype as a free, primarily consumer-oriented version of Lync Online, while businesses would pay for security and quality features.  However, this would take careful planning and marketing, and it may not provide an acceptable return on an $8.5 billion purchase.  There is also a lot of uncertainty surrounding regulatory concerns if Microsoft wants to embed Skype into Windows.  Microsoft has already suffered regulatory retribution for embedding Internet Explorer into Windows.  The EU and US regulators took a long hard look at Microsoft’s takeover of Skype (which many voices opposed), and we can be sure that they will watch future Microsoft-Skype developments with eagle eyes.

About Gary Barton
As an analyst on the Current Analysis Business Network and IT Services team, Gary covers Business Telecoms Services for the UK and Ireland, with a particular interest in SME and public sector services. Gary’s responsibilities include updating and maintaining Current Analysis’s competitor assessments for the major telecoms companies operating in the UK and on a Pan-European basis.

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