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Facebook’s Skype Deal Deepens Microsoft Relationship

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Jul 062011

Is Facebook becoming Microsoft’s not-so-secret weapon in the latter’s battle against Google?

That’s what I’m starting to think after Facebook’s July 6 presentation in which the company unveiled a new video-chat feature developed in collaboration with Skype. Microsoft, of course, recently acquired Skype for the not-so-low price of $8.5 billion, with announced plans to integrate the latter’s assets into Microsoft products such as Office 365.

“We are now making it possible to video chat with your friends right from within Facebook,” read a note on Skype’s corporate blog. “The partnership with Facebook makes fantastic business sense for Skype and gives us an unprecedented opportunity to offer Skype’s voice and video-calling products to more than 750 million active users on Facebook.”

During Facebook’s presentation, CEO Mark Zuckerberg claimed his company had been working with Skype on the project for the past six months, well before the acquisition announcement. Nonetheless, Skype’s emerging role as a Microsoft business unit necessarily means the relationship between Microsoft and Facebook, already close, will only deepen in quarters to come.

Facebook’s relationship with Microsoft’s Bing search engine is already pretty tight. When users query Bing for specific people, for example, the search engine can offer Facebook information on the results page. If they’re traveling to a new city, such as Paris, Bing will tell them which Facebook friends live there. Bing will also notify users of airfare deals for places they’ve liked on Facebook, and let users post Bing Shopping pages on their Facebook wall (“Should I buy this?”).

In a March interview with eWEEK, Bing director Stefan Weitz suggested that the Web’s social layer has come to mimic the same sort of behaviors that people exhibit in the real world. Even before the addition of the new social features, Facebook and Microsoft had already collaborated on Facebook Profile Search, which leveraged a user’s Facebook connections to deliver more relevant results for people searches; they could also post messages to their Facebook walls via Bing’s pages.

Facebook could use the added muscle. Google, which almost certainly sees Facebook as a major competitor for online ad revenue, recently unveiled Google+, its nascent social-networking service. Whether or not Google+ becomes an existential threat to Facebook, it certainly raises the specter of increased rivalry–and boosts the pressure on Facebook to create new features that will hold its 750-million-member base.
With Skype, at least one of those Facebook features is coming courtesy of Microsoft. And in the process, both companies are bringing something to bear against their mutual rival. The question now is how Google (which already boasts its own video-chat feature) will respond.

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Facebook’s Skype Deal Deepens Microsoft Relationship

Advertising & Search, Business Applications, Corporate, Windows 7, Windows News No Responses »

Jul 062011

Is Facebook becoming Microsoft’s not-so-secret weapon in the latter’s battle against Google?

Microsoft’s Skype Deal Means Monetizing

Business Applications, Corporate, Desktop & Mobile, Windows 7, Windows News No Responses »

May 112011

There’s an interesting blog posting from Ben Horowitz, co-founder and partner of venture firm Andreessen Horowitz, detailing what he sees as Skype’s competitive advantage over companies like Google and Apple. Of course, he has a vested interest in promoting Skype as the 800-pound gorilla of voice over IP and video conferencing, untouched by its competitors–Andreessen Horowitz was one of the private investors with a stake in Skype, before Microsoft announced the $8.5 billion acquisition this week, meaning Horowitz may have made enough off the platform to buy a Porsche for every day of the month.

First, he cites Google’s attempt to market a similar VOIP offering to Skype via its Gmail service. “What was the result of this effort?” he wrote in that May 10 posting. “Skype new users and usage growth has accelerated since Google’s launch.”

Then he calls out Apple’s FaceTime as being unable to blunt Skype’s momentum: “How did that impact Skype’s usage on the iPhone? 50 million users have downloaded Skype’s iPhone product since the release of Apple’s FaceTime.”

Perhaps unsurprisingly, Horowitz sees Microsoft’s acquisition as an unmitigated Good Thing: “By acquiring Skype, Microsoft becomes a much stronger player in mobile and the clear market leader in Internet voice and video communications,” he wrote. “More importantly, Microsoft gets a team, ably led by the exceptional Tony Bates, that can compete with anyone.”

In 2005, eBay agreed to pay $2.6 billion in cash and stock for the then two-year-old Skype. Four years later, the auction site announced it would resell a majority of its Skype holdings to a team of private investors–including Silver Lake Partners and Andreessen Horowitz–for $1.9 billion in cash.

Pending regulatory approval, Skype will become a Microsoft division headed by Skype CEO Tony Bates, and its services will be meshed with a variety of products in Microsoft’s portfolio, including its Lync unified-communications platform, Outlook, and Xbox Live. In a May 10 press conference, Microsoft CEO Steve Ballmer suggested that the deal, the biggest in Microsoft’s history, is the sort of bold move needed as his company faces competition on multiple fronts: “This Skype acquisition is entirely in keeping with our ambitious, forward-looking, irrepressible nature.”

Microsoft will almost certainly pursue how to monetize its newest addition. “While it’s true that Skype has been slow to make money off its service, the potential is there,” Forrester analyst Ted Schadler wrote in a May 10 blog posting. “Local phone numbers, three-way video conferencing, business administration, and making calls to real phone numbers are all things that people will pay for.”

If Microsoft loads up on for-pay services, though, will that drive users away from Skype to the waiting arms of Google or another platform?

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Microsoft’s Bing on BlackBerry Deal All About Microsoft

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May 032011

What’s Microsoft’s deal with Research In Motion?

Ostensibly, the two companies are competitors, at least in the smartphone arena: Microsoft desperately wants to make its Windows Phone 7 platform a hit with both consumers and businesses, which places it in direct competition with RIM’s BlackBerry franchise. And when Microsoft finally gets around to its hard consumer-tablet push, those devices will presumably go head-to-head with RIM’s PlayBook.

Yet in the past couple weeks, the companies have locked themselves into a deepening set of partnerships. First there was the agreement to port cloud services such as Office 365 onto the BlackBerry and the new PlayBook tablet, with RIM’s BlackBerry Servers connecting “cloud to cloud” with Microsoft’s data centers to host Office 365 data on users’ devices.

Then, Microsoft CEO Steve Ballmer took the stage at this year’s BlackBerry World Conference to announce that Bing will serve as the integrated search and mapping service for Research In Motion’s BlackBerry smartphones.

“While Microsoft will support the top phone platforms with our cloud services,” Ballmer told the audience, “we’re going to invest uniquely in the BlackBerry platform in addition to our own Windows Phone platform.”

That wasn’t Ballmer’s last mention of Microsoft’s smartphone platform at a RIM-sponsored event, and I’m betting it set more than one RIM executive’s teeth a-grinding. Anyway, Ballmer managed to stick on what I presume is the script for most of his talk. [All quotes come courtesy of my colleague Clint Boulton, currently attending the conference.]

“Effective today, Bing will become the preferred search and maps application for BlackBerry,” he said, “with regular feature placement and promotion in the BB App World carousel. BlackBerry devices will use Bing as the default search provider in the browser, and Bing is the default search and map experience for new devices presented to mobile operators both here in the United States and around the world.”

Bing’s integration with BlackBerry will deepen by the end of 2011, becoming a core component of the devices. Both Microsoft and RIM will devote resources to promoting Bing on BlackBerry’s merging of search, commerce, social- and location-centric services.

Ballmer also fired a couple of shots in the direction of Google and Apple.

“Certainly Android, the volumes have risen, but there is ensuing chaos that has caused a level of frustration, let’s just say with developers and consumers alike,” he said, before aiming at iOS: “Apple’s platform has certainly offered opportunity for application developers, but there are a very limited set of ways to collaborate and extend the experiences of their device for businesses and consumers.”

(You can almost hear those RIM executives thinking: Steeeeve, get back to talking about us.)

Microsoft is a company that likes to hedge its bets, and work all possible angles. That’s why the company’s not just relying on Windows Phone 7 to gain market share on its own merits–it’s also flinging jets’ worth of attorneys, armed with hefty patent lawsuits, at manufacturers producing Android devices. It partners with rivals like Yahoo. It touts Office for Mac even as its people scramble for a response to the iPad.

The relationship with RIM falls into that pattern. RIM’s business audience is also coveted by Microsoft. Partnership between the two companies will expose that audience to Microsoft products like Bing and Office 365. That prospect apparently supersedes the fact that RIM stands in the way of at least a portion of Windows Phone 7′s potential market-share. But make no mistake about it: even as Ballmer was touting the benefits of that RIM-Microsoft partnership onstage, it’s a pretty sure bet there’s only one company he really cares about.

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Microsoft’s Earnings Call Hints at Trouble Spots

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Apr 292011

Microsoft should probably give the executive who signed off on developing the Kinect a serious raise.

The hands-free controller, along with Office 2010, helped power some solid quarterly revenue numbers for Microsoft: $16.43 billion, a year-over-year increase of 13 percent. Net income rose 31 percent, to $5.23 billion. The company’s Business Division performed well, rising 21 percent year-over-year, and the Entertainment and Devices Division reported a 60 percent increase.

While Microsoft continues to practically print money every quarter, thanks in large part to the performance of legacy products like Windows and Office, this most recent quarterly report has three areas of potential concern:

Yahoo

Microsoft should also give a raise to whichever executive decided to scuttle the potential Yahoo acquisition, a few years back. In place of spending billions of dollars snatching up the Web portal company, Microsoft eventually entered into a search-and-advertising partnership that features Bing powering Yahoo’s backend search, while the latter takes over the lion’s share of online sales-force duties for the two companies.

On paper, the deal makes sense for Microsoft. It increases Bing’s market presence, the better to battle Google. However, so much depends on perfect execution.

However, during an April 28 earnings call, Bill Koefoed, Microsoft’s general manager of investor relations, cautioned that “expected monetization” of the Yahoo search-and-advertising agreement is “taking longer than expected” and that “international integration efforts” have been delayed as a result.

It could be a speed bump on the way to a tight and successful integration. Or it could be an early warning sign that something in this deal is about to go wrong. Either way, it’s definitely worth keeping an eye on.

Windows

Microsoft’s Windows segment reported a 4 percent dip, something the company explained in a statement ahead of its earnings call as “in line with PC trends.”

Windows 7 has sold some 350 million licenses since its October 2009 launch. That’s impressive, but an operating system is nothing without hardware–and global sales of PCs declined over the last quarter. During the earnings call, Microsoft estimated that PC dip at between 1 and 3 percent. Analyst firm IDC takes a harder view, suggesting the drop is 3.2 percent.

“A spike in fuel and commodity prices and disruptions in Japan” was at least partially responsible for the slackening, according to a recent note from IDC, along with a “cautious business mentality and waning consumer enthusiasm.”

In the wake of the call, a number of analysts posted research notes suggesting that Windows will continue its strong selling pattern into the future, particularly with businesses. But the rise of tablets (which are cannibalizing netbooks), and increased emphasis on mobile devices as a primary means of daily computing, could threaten to eat at Windows’ previously rock-solid foundation. That is, unless the next version of Windows appears on mobile form-factors in addition to PCs, and Microsoft executes a smart strategy that makes it a strengthened player in all parts of the hardware/software stack. But that’s a big “if.”

It’s very likely that a Windows-style response to tablets is in the works. Microsoft announced previously that the next version of Windows, rumored to arrive sometime in 2012, will support system-on-a-chip architecture, in particular ARM-based systems from partners such as Qualcomm, Nvidia and Texas Instruments. ARM’s expansive presence on current mobile devices suggests that Microsoft has plans to port “Windows 8,” at least in some fashion, onto tablets.

But 2012 is also a long time away.

Windows Phone 7

Microsoft is still playing close to the vest in terms of breaking out Windows Phone 7 consumer-sales data. At this point, we have so many other official data-points — unit sales from manufacturers to retailers, number of third-party developers registered, etc. — that the absence of that consumer-facing data seems more and more conspicuous. And silence, remember, has a habit of making people think that something’s not going well.

Microsoft’s going to have to bite that bullet and release those numbers at some point. This isn’t Kin, or even the Zune HD; they’ve put a lot of capital into pushing Windows Phone 7 into the world, and a lot of people (analysts, investors, journalists) are going to be expecting to see some sort of hard-number result at some point.

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