News and views: Microsoft to buy Skype for $ 8.5 billion

The biggest buzz on the street today is the imminent acquisition of Internet Telephony major Skype by IT giant Microsoft. More details about the news are here.

My particular read of this news is essentially that Microsoft is giving into its panic of losing the race for IT dominance to competitors like Google and Apple. I contrasted this with the earlier news of the tie-up with Nokia and in many ways, the rationale for the decision also seems to be the same. The Nokia tie-up was aimed at Apple iPhone and Google Android, while this one is solely levelled at Google.

Microsoft hit a plateau with innovation a long time back and has been content with providing “me-too” products. Somehow, the Microsoft top management answer to tackle this is either tie-up with or acquire popular market leaders in a financial crunch. Other than a few winners like Forethought (which became Microsoft Powerpoint) and Visio Corporation (which became Microsoft Visio) Microsoft’s history with acquisition has not been very promising, case in point,, Savvis and Fast Search & Transfer.

The synergies for this acquisition are clear. Skype, being the first and most popular Internet telephony, has a huge retail fan base as well as is popular with Small Businesses. With Google’s GTalk slowly gaining popularity due to its integration with social networks, Microsoft would want to integrate Skype technology with its Operating System and Office Suite products and leverage its loyal user base in those products. Whether this integration would be smooth or would end up being another feature in the Microsoft products that users never use, is still to be seen.

The winner here is clearly Skype, which just like Nokia, has received much needed funds to remove its financial woes. Microsoft on the other hand, has gained powerful technology, which it would need to use innovatively to succeed. 


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