Tuesday, May 10, 2011

Microsoft's purchase of Skype

Microsoft is buying Skype for a whopping $8 billion dollars. This is an insane valuation for a company that isn't profitable, and has no clear path towards profitability. Skype's technology is good: peer-to-peer (p2p) communication for voice traffic, and some impressive firewall evasion logic.  But it isn't worth $8b. Microsoft is buying Skype users. The hope is that a majority of these users will remain and use the Microsoft version of Skype. Perhaps these users will want to buy Windows Mobile 7 phones rather than iPhone or Android and Xbox rather than the Wii2.

I'm skeptical about this acquisition. Microsoft botched the Hotmail acquisition pretty badly. They fell behind on many web features that Yahoo Mail and Google Mail added, and they have never caught up. Back in the early days of web mail, there were a large number of new accounts being created everyday. Existing users weren't worth much unless you had a clear path to entice new users. Hotmail failed at this entirely, most new users went to the faster, better-looking Yahoo Mail. When Gmail came around, many people jumped again, because Gmail provided a bigger inbox and a much better interface. Changing email addresses is very painful: people have to circulate a new address and keep monitoring the old address for a while. Despite these hurdles, both Yahoo Mail and Gmail were compelling enough for Hotmail users to switch. Unless Skype continues to be innovative, people will switch.

Skype is a lot easier to move from: I suspect Skype contacts lists are much smaller than Facebook contact lists by an order of magnitude.  I have fifty or so Facebook contacts, but only four real Skype contacts. I could switch away from Skype in an evening. And I will.

Microsoft has a history of poor cross-platform support. Skype worked well for me because of a good Linux client. After the acquisition, both the Linux and MacOS clients will rot away, and the newest features will only be available on Windows. This is just a guess, and Microsoft's product lineup supports this belief. Skype's existing Android client is shoddy, and I doubt it will improve with Microsoft's leadership.

Finally, I am skeptical about Skype's ability to innovate under Microsoft. Many products have tried this (Flight Simulator, Bungie), and the results have been dismal. If Skype isn't getting any better, and perhaps getting worse, I should start looking for alternatives right away.

Luckily, Google has compelling video and voice chat and it works perfectly on Linux, Android, Mac and Windows.

(Disclaimer: I am a Google employee, but my bosses didn't pay me to write this.)
Image courtesy: mjomark on Reddit.