Microsoft must work fast on Skype integration

Microsoft's decision to buy Skype for $8.5bn has had many in the industry scratching their heads today, not just about Microsoft's pressing need for Skype's technology but the price and the legal consequences of the deal.

Facebook and Google were initially rumoured to be buyers for Skype, which had been due to register for a share offering later in the year. However, Microsoft's deal, and the amount it is willing to pay, has raised some eyebrows.

Microsoft could do with Skype's technology and its customers, but analysts are not convinced that Microsoft will get its money's worth.

"Whether this goes down as an excellent deal for Microsoft, or Steve Ballmer's £8.5bn folly, depends on implementation," Gartner analyst Michael Gartenberg told V3.co.uk.

"There are considerable advantages for Microsoft if it gets it right, but it will need to integrate Skype's technology quickly in order to show it was worth it. For many people Skype is their social network, it's the key way they keep in touch, and that could be useful to Microsoft."

However, Gartenberg pointed out that Microsoft has had problems integrating new technology purchases within the corporate structure. If key Skype personnel leave once the deal terms have been concluded, Microsoft could end up with a brand and nothing else.

Skype offers definite advantages in terms of market share for Microsoft, particularly in the small and medium business (SMB) sector. Microsoft is well advanced in a unified corporate communications software platform for enterprises, but the Skype deal could give it access to the lower end of the market.

"We've definitely seen Skype get a lot of traction in the SMB market in the last year, especially at the smaller end of the market," IDC analyst Irene Berlinsky told V3.co.uk.

Skype would have definite advantages for Microsoft's consumer brands like Xbox in providing a new platform for players to talk to each other, according to Berlinsky.

However, smaller businesses are using Skype for low cost calls, and Microsoft would have to maintain that approach.

"There are some small businesses that use Skype because it's cheap - you get what you pay for and you pay nothing for it," she said.