Blog: Microsoft buys Skype for $8.5bn – the end of free Videoconferencing?

So I admit that I do not understand Microsoft’s objectives with this deal overall but I thought I would write about what it might mean for the videoconferencing industry.

To start with Skype is the biggest player by far in VC – with 700 million users and some 30 per cent of calls claimed to involve video their VC traffic dwarfs Polycom and Cisco’s combined. The other point to consider though is that Skype’s video coding is entirely proprietary.

This is an important point because in the past companies like Picturetel, Polycom, Tandberg and Lifesize made sure that their systems were able to interoperate with each other so that a user of any one of these systems could VC successfully with any other. This has all changed with Skype who have so many users that they have been able to afford not to be interoperable with the other suppliers. They have been able to say “you have to be compatible with us” – it’s as if Apple were saying to iPhone users “you can only speak to other iPhone users”. Microsoft also has a history of establishing proprietary products as de facto standards e.g. MS-DOS, Windows and Office, so they might well see Skype offering a similar opportunity. And this might possibly be the key to the gigantic price.

Or perhaps not: how many users would Skype have if its service wasn’t free? It seems inevitable that Microsoft will have to charge the vast majority of Skype users for their calls if they want to start getting a return on their huge investment, and that this will decimate the user base. When this has been done elsewhere, such as with the Times newspaper and its £1 daily charge, the number of subscribers has been cut by 98% or more as customers have switched to other free services. So I believe that this means that Microsoft will not be able to impose its video standards on our industry with this acquisition, and that interoperable or “open” VC systems will continue to dominate the market, especially the business VC market.