Will Skype gamble pay off for Microsoft?(Reprint)

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Imagine using your Xbox and switching from a game to a video chat with a faraway friend holding an iPad. Or going into your office email to invite Grandma to a virtual family reunion beamed on TV sets to relatives across the globe.

Microsoft's $8.5 billion purchase of Skype is supposed to make using the internet for video phone calls as common as logging on to facebook or instant messaging is today.

If it wins regulatory approval, the deal announced on Tuesday provides Microsoft, the world's largest software maker, with the means to sell more digital advertising and offer more conferencing tools to businesses.

Skype's services also span hot markets - online socialising, mobile phones and digital video -where Microsoft has been struggling to catch up with facebook, Apple and Google.

Analysts and investors couldn't seem to agree on whether Microsoft is wasting its money on an unprofitable service, or has pulled off a coup that will help it restore clout.

Microsoft believes it can attract hundreds of millions more by weaving Skype into its products. Not just Windows, which runs on eight of every 10 computers and servers, but also its Outlook email program, software for phones and the Xbox games console.

For businesses, Microsoft has separate communications software. Building Skype into it would make it easier for corporate users to conduct video chats with people at other companies, or from home, said Bern Elliott, an analyst at the research firm Gartner.

Skype allows users to make voice and video calls for free or a seriously low rate pennies. Calls from one Skype account to another are free.

Microsoft pledged to keep Skype in all the places it is currently available, including mobile devices that run off the software of two major rivals, Apple and Google. Skype users don't have to pay to install the software on Apple's iPhone, iPad computer tablet or on Google's Android system.

The new ownership is likely to means more advertising in Skype's video services.

The partnership would also bring Skype to the Xbox - the world's number two video gaming system.

The Microsoft-Skype partnership means a player could one day put a game aside and use the Xbox to call anyone else who has registered for a Skype account - a grand-mother on her landline, a friend holding an Android phone, a co-worker using Outlook email at work. It's also conceivable that Microsoft could expand Skype's video chatting services into social internet leader, facebook. Microsoft owns a 1.6 per cent stake in facebook, and both have an interest in cutting into Google's power.

When eBay bought Skype for $2.6 billion in 2005, it saw tremendous potential to bring together the millions of buyers and sellers in its online bazaar. But 'Skyping' and shopping didn't fit together the way eBay envisioned, feeding the skepticism about whether Microsoft will be able to realise its ambitions.

"The onus is on Microsoft to execute with this deal," said Morningstar analyst Sunit Gogia. "It's really hard ... for shareholders to be optimistic at this price point."

Although it makes billions of dollars selling software for personal computers, Microsoft has struggled badly in its effort to become a bigger force on the net. In the past six years, Microsoft's online division has lost more than $7.2 billion. Skype has also lost money consistently since its inception in 2003, mostly because it charges a small fraction of its users. As a standalone company, Skype lost $7 million on revenue of $860 million last year.

That didn't deter Microsoft. "We are a super-ambitious company," Microsoft CEO Steve Ballmer said. "This Skype acquisition is entirely consistent with our irrepressible, forward-looking nature."

This article was originally published by www.7days.ae.

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