In Wake of Skype Deal, Will Microsoft Investors Revolt?

Rich Tehrani : Communications and Technology Blog - Tehrani.com
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In Wake of Skype Deal, Will Microsoft Investors Revolt?

In 1997 when TMC decided to launch a magazine focused on IP communications named Internet Telephony, the nascent market had VocalTec, a software manufacturer charging around $50 for their software and Microsoft with their NetMeeting software which was free. Overnight, Microsoft took over the VoIP client market and became the reference software for H.323 calls - a standard which is rapidly losing out to SIP for most applications.

NetMeeting was clumsy to use - it had a GUI but was clunky and not friendly to users. Microsoft lost interest and reallocated most of its telecom developers to its newly formed Internet strategy.

Likewise for Microsoft's wireless phone strategy - the company was way ahead of the market in developing phones which could do so much but the level of complexity kept the company from becoming the market leader.

In the first case Skype became the winner of the easy to use VoIP software wars. Not that there was really a war - there was a massive vacuum in the market when Skype launched. In the second case, Google and Apple are the beneficiaries.

Now, The Wall Street Journal is reporting that Microsoft is near a deal to purchase Skype for $7B. The irony of course is they are spending this much money to reenter a market which they dominated and didn't lose to a competitor - they just sort of gave up.

If you liken Skype to Hotmail, the argument can be made that Microsoft is making a decision which is not so risky because customers aren't easily able to defect. So it is a smart move from this perspective. Moreover, Skype is getting embedded in device after device - especially televisions - a super-attractive market for Microsoft.

I have likely been the lone voice in the tech world opining about how undervalued Skype has been - even at under $2B - if this deal goes through it will show the sheer value of writing a piece of software to disintermediate the global telecom ecosystem.

But if you are a Microsoft shareholder - you may be scratching your head trying to figure out how Microsoft had and lost a market by just losing focus. This goes for VoIP and smartphones. And now it is spending billions to get back markets it didn't need to lose.

The question worth asking is which is the next market to be lost due to apparent apathy?

See my earlier post: Google and Microsoft Telecom Failures: Lessons Learned


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