As regular readers of this blog know, it’s a question I’ve been pondering over for some time – not just how far should companies go but how far can they go, particularly the consumer giants that are driving the current wave of convergence.
On June 8th and 9th, the Open Mobile Summit, produced by my good friend Robin Batt, will take place again in London (www.openmobilesummit.com). This year’s theme appropriately is “Connecting Everything”, and the day 1 keynote is Stephen Elop, CEO of Nokia. I, like many, am keen to hear his views on how Nokia and Microsoft plan to execute their convergence strategy, and in particular where Skype fits into this picture.
The $8.5bn spent by Microsoft on Skype is a pretty major statement of the value Microsoft sees in a 170million user ecosystem as the core of its future cross device communications strategy. The deal has sent media hacks into a frenzy again, variously describing it as inspired, overpriced, and fraught with execution risk.
For once I have to agree with the general tone of most of the commentary. The deal is in principle a great fillip to Microsoft and Nokia's ambitions to be a major cross platform global force. It provides them with both a software platform, and crucially a sizeable network of users around which to build tomorrow's mobile voice services.
While the marginal cost of carrying voice over today’s mobile networks is considerably lower than the retail price, an installed base of handsets designed to deliver voice only over circuit switched networks sustains high voice margins for mobile operators. However, as we move to 4G LTE networks, structural reasons to keep voice separate from other forms of data will disappear. At some point therefore, a seamlessly integrated VoIP client and all inclusive unlimited voice minutes at a flat monthly rate becomes inevitable. At that point, Skype's service and user community should be a key asset for a “Mickiaskpe” to exploit.
Skype has also built a very useful foothold in internet TV, a key target for Microsoft and it's partners. Again, potential exists to build out rapidly from this substantial beachhead in the landgrab that is the convergent media space.
Much has been said regarding Microsoft overpaying for Skype, and the numbers surrounding the deal make that position an easy one to argue. However, the truth is we will only know some years down the line whether the deal was worth the money or not.
Mark Volpi, ex CSO at Cisco, recently made the point on Gigaom that the valuation of a deal of this type is less important than the option value. As any VC or M&A exec will tell you, 2 in 10 acquisitions will succeed big. When they do the initial valuation price is inconsequential.
As ever, it will be Microsoft and Nokia’s ability to execute that will be key to value creation. Successful execution will mean integration of the Sype community with Windows Live and Hotmail followed by consistent and rapid deployment across mobile, tablet and TV platforms. Hence, Stephen Elop’s view on Skype and the speed with which the Skype client will be seamlessly integrated into Windows Phone 7 and on into Nokia handsets will be a interesting pointer to the likelihood of the deal being a success.