With Skype buy, Microsoft plays keep-away with Google

Microsoft forks over $8.5B to get Skype and keep it away from rivals

Microsoft's scooping up of Skype should be a great boon for the software maker, despite the hefty $8.5 billion price tag, say industry analysts.

An added benefit is that buying Skype puts the screws to Microsoft rival Google , which had been rumored to be pursuing Skype on its own. Microsoft may feel that keeping a prized communication company out of Google's hands is worth a good deal of the cost of the acquisition.

"Microsoft wants to make sure Google doesn't get Skype," said Rob Enderle, an analyst with the Enderle Group. "They do not want Google to corner the market on communications . Microsoft thinks Google has enough. They don't want Google to have this as well."

Tuesday morning, Microsoft CEO Steve Ballmer held a press conference to announce that the company had reached a deal Monday night to buy Skype, a voice and video communications company. Microsoft will paying $8.5 billion in cash for the company.

Once the merger is finalized, Ballmer said Microsoft will connect Skype users with its Outlook and Xbox Live services, while also connecting Skype to its Xbox and Kinect gaming devices and Windows Phone mobile operating system.

During the press conference, Skype CEO Tony Bates did not answer when a reporter asked him what other companies had been vying to buy Skype. Over the past few weeks, reports have circulated widely that both Google and Facebook were trying to scoop up Skype.

Buying Skype makes sense for Microsoft's business strategy, said Dan Olds, an analyst with The Gabriel Consulting Group.

"Microsoft will be able to integrate Skype functionality into their products and create some synergy," he explained. "For example, functions could be built into Microsoft Office that allow you to call (via Skype) the co-worker who created a document that you're working on -- with just a mouse click or two."

So if Skype offers strong business benefits and intensifies its competition with a big business rival, that's just a win-win situation, analysts said.

"For Microsofties, this has to be considered a big victory over Google and even Facebook, both of whom have been rumored to be after Skype," Olds said.

Enderle said the high price that Microsoft paid for Skype shows that it's more than just a move to build out the company's communications offerings.

"They're tired of fighting Google from behind," he said. "I think Microsoft is just being a tougher negotiator, and they're willing to go to great lengths to make sure Google doesn't get any more beach heads."

While the move will prevent Google from attaining another strong brand name in Skype, and will slow the search company's move into the voice and video communications market, Google has other options.

"Google has voice communications now, and there are a host of smaller players out there that they could partner with to build out the rest of their portfolio," said Olds. "Buying Skype would have gotten them there quicker, of course. But not having Skype isn't a huge barrier to Google. It just means they'll have to cobble together some pieces and build up a brand over time."

Ezra Gottheil, an analyst with Technology Business Research, said Google's success with Google Voice may have spurred Microsoft to grab up Skype for itself and keep it from helping Google round out its own VoIP offering.

"VoIP and Video Chat over IP are potentially a strong, sticky business," Gottheil said. "It needs design, implementation, and a significant investment in infrastructure, but it's potentially a big winner. Skype would be valuable to Google or to Facebook, but Microsoft could get greater incremental value out of it -- if it doesn't screw it up."

He added that Microsoft has a lot of work ahead of it to build out Skype, and that should alleviate some of Google's disappointment.

"Google has a smaller distance to travel with Google Voice than Microsoft has with Skype," Gottheil said.

Sharon Gaudin covers the Internet and Web 2.0, emerging technologies, and desktop and laptop chips for Computerworld. Follow Sharon on Twitter at @sgaudin or subscribe to Sharon's RSS feed . Her e-mail address is sgaudin@computerworld.com .

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Sharon Gaudin

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