HUA HIN, Thailand - The deal of the week saw software giant Microsoft make the
largest acquisition in its 36-year history by buying Internet phone service
Skype for US$8.5 billion. The company is aggressively seeking new ways to
generate revenue as its traditional method of computer software sales is under
threat from an advancing army of mobile handsets and communication devices.
Microsoft has also been yearning for a consumer brand to bring back customers.
Chief executive Steve Ballmer tried turning its search brand into a verb,
namely Bing, but it has yet to catch on as the majority of Internet searches
continue to go to Google. The strong demand for gadgets such as smart-phones
and tablets has seen a slowdown in the sales of desktop computers and
consequently the software that runs on them. Microsoft stock has
followed this decline.
This latest acquisition comes as Microsoft finally breaks free from the bonds
of a government antitrust settlement that has been hanging over the company for
over a decade. The digital shackles were originally slapped on the company in
1998 when it bundled Internet services onto PCs in an effort to create a
monopoly. Since then, rivals Google and Apple have created their own
substantial monopolies, leaving Microsoft behind.
Microsoft executives are confident about their new purchase. "At Microsoft, we
see enormous opportunity that brings together what people want - data, voice,
video, instant messaging, all on a single screen - whether it's a smartphone, a
PC, a slate or the TV. Microsoft and Skype together will define this future and
what it really, really looks like," stated Ballmer at a press conference this
The plans are to integrate Skype into leading Microsoft products such as
Outlook, Xbox, Windows Phones, Hotmail, Bing Search and more. Part of Skype's
popularity stems from the fact that it is compatible with many platforms, such
as Windows, BlackBerry, Apple OS, Android, Linux, Symbian and even some
televisions. Microsoft has no plans to change this and will be committed to
investing and supporting Skype on non-Microsoft client platforms.
The ship came in for private investment firms led by Silver Lake and Andreessen
Horowitz, which sold Skype to Microsoft just 18 months ago after acquiring a
majority stake in the company from eBay in a deal valued at $2.8 billion.
Microsoft will soon have access to Skype's 170 million monthly users, although
the real challenge will be in converting those into paying subscribers or
generating a revenue stream from them by other means such as advertising. Only
an estimated 6% of Skype users actually pay for its services and last year it
lost $7 million on $860 million in sales.
The move is just the latest in the game of digital chess between the world's
mega-corporations, however $8.5 billion to stop Google getting hold of Skype
does make it a bold one.
Commanding a cell phone or tablet device doesn't seem to be enough for Google,
which is taking its mobile operating system Android a step further by offering
home connectivity and control solutions. Android@Home, announced this week at a
company developer conference, will allow users to control household appliances
through applications on their Android mobile device.
Google will be developing its own wireless protocol to allow connectivity
between lights and electrical appliances and the Android device in what it has
touted as "the home of the future". This latest step towards global digital
domination will largely depend on the 5,000 or so developers who attended the
conference as these will be the people working on the apps.
No release date has been set for the system, which may include Project
Tungsten, a wirelessly controlled speaker system that can be synched with the
Android device, and wireless lighting technology that can adjust household
lighting in synch with games played on a tablet.
As innovative as it sounds, one wonders if the boffins at Google have
considered the scenario of a security breach involving an irate neighbor (or
worse) with some technical knowledge hacking into your home, switching off the
lights and fridge, flooding the washing machine, and playing their favorite
heavy metal album at full volume, resulting in the destruction of your speakers
and ear drums while you fumble around in the dark looking for your mobile
The company is also hot on the heels of Apple and Amazon with the announcement
of its new digital music service. Initial impressions leave a lot to be
desired. There is no store yet, so iTunes will continue raking in the dollars.
The streaming function is somewhat restrictive, and there have been problems
obtaining licenses from the major record companies.
Google's Music Beta service has a long way to go before it can take a bite out
of the Apple, especially if it is struggling to reach agreements with the
record labels, which hold an even tighter grip on control of their products
"Generally, there were demands on the business side that we think were
unreasonable and donít enable us to have a sustainable, scalable music
business," stated company executives.
If Google fails to secure permission to stream music, it may well follow in
Amazon's footsteps and offer a cloud-based storage and sharing facility.
Meanwhile, rumors are already emerging about Apple's next offering, which may
come as no surprise if it is called iCloud!
Martin J Young is an Asia Times Online correspondent based in Thailand.