Despite its place as one of the biggest and most influential technology companies in the enterprise space Microsoft has never really been one for big acquisitions, at least when compared with many of its competitors.
While the likes of IBM and Oracle have been buying companies left, right and centre as they look to buy-in new revenue streams, Microsoft’s acquisitions, particularly over the past few years, have generally targeted intellectual property and talent, such as the 2000 purchase of Bungie Software for a figure believed to be around $30m.
The company behind the mega-selling Halo computer game series generated huge amounts of money for Microsoft before splitting off from its parent company in 2007, with Redmond retaining a minority stake.
In terms of acquisitions Microsoft has only ventured above the $1bn landmark a few times: Visio for $1.4bn in 2000, Navision for $1.3bn in 2002, online advertising firm aQuantive in 2007 for $6.3bn, enterprise search vendor Fast Search & Transfer for $1.2bn in 2008 and, most recently, VoIP firm Skype for $8.5bn, its biggest acquisition to date.
Initial reaction to the deal was surprise: Microsoft already has very strong messaging and voice and video chat capabilities in Windows Live Messenger on the consumer side and Microsoft Lync in the corporate space. Was it really buying $8.5bn worth of improvements?
Skype has around 660 million registered users, with about 100 million active users each month and 23 million simultaneous users at peak times, mostly drawn in by the offer of free voice and video calls over the Internet. Microsoft’s offering, by way of contrast, pulls in around 330 million active users each month.
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And the financial figures? Nope, they don’t make the reasons for Microsoft’s interest any clearer. Of Skype’s 660 million registered users around nine million are paying customers, giving them the option to make Skype calls to mobiles and landlines, use voicemail and send text messages.
Customers using Skype in their business can also pay for the Business Control Panel, meaning admins can track expenditure and assign different numbers to workers. However, in 2010, despite revenue of $860m, Skype lost money, albeit just $7m.
When the deal was announced Microsoft didn’t give too much away regarding its plans. "Skype will become a new business division within Microsoft," it said in a statement. "The acquisition will increase the accessibility of real-time video and voice communications, bringing benefits to both consumers and enterprise users and generating significant new business and revenue opportunities."
Speaking to the BBC, Microsoft CEO Steve Ballmer added: "Microsoft is fundamentally invested – whether it’s in PCs, phones, Xboxes, Outlook, Messenger or Hotmail – in helping the people of the world communicate so it’s natural we should come together."
It’s the prospect of integrating Skype with Microsoft’s phone business that many analysts have picked up on. The Redmond firm has invested heavily in that area recently as it tried to catch up with Apple and Android. It has launched Windows Phone 7 and announced a deal with Finnish handset maker Nokia that sees WP7 become the software that will run on Nokia devices.
"Microsoft failed miserably at mobile," writes Forrester’s Mike Gualtieri on the firm’s blog. "While the boys and girls in Redmond were contemplating how to put the ‘Start’ menu on a phone, Steve Jobs was cleaning mobile clocks with the iPhone. But, like all great competitors, Microsoft knew they lost it. So they started from scratch. The result: Windows Phone 7.
"In my opinion it’s an awesome mobile platform on a par with iPhone, albeit with a lot less cultural cachet. The problem: the momentum favours iPhone and Android. Microsoft needs an ace card. Ballmer, potentially, found an ace card in Skype.
"Skype is not a phone," Gualtieri continues. "It’s a way to see your three-year old granddaughter, connect with your adult children, or make sure your family is safe 4,000 miles away. And it’s mostly free. What is important is that many of these users would love to make free calls on a mobile phone. Microsoft’s plan to acquire Skype fits in perfectly with its recent partnership with Nokia because both offer incredible reach. There is no stopping Apple when it comes to mobile and cultural dominance. But Microsoft could displace Google as the alternative, based on the great UX provided by Windows Phone 7, the Nokia partnership and the Skype deal."
Om Malik, writing on his GigaOm technology analysis site, says that while it’s perfectly possible that Microsoft will botch this deal – "as it often does when it buys a company" – there are a number of reasons why it could work.
"Skype gives Microsoft a boost in the enterprise collaboration market, thanks to Skype’s voice, video and sharing capabilities, especially when competing with Cisco and Google," Malik writes. "It gives Microsoft a working relationship with carriers, many of them looking to partner with Skype as they start to transition to LTE-based networks. It would give them a must-have application/service that can help with the adoption of the future versions of the Windows Mobile operating system."
But what do those in the unified communications industry make of the deal? "The whole announcement continues to create momentum for the visual communications," Polycom’s EMEA president Gary Rider tells CBR. "In a pragmatic world I see it as very positive because it brings attention to that and it makes it more of a topic of conversation within enterprises."
Also speaking to CBR, Lee Shorten, Avaya UK managing director, adds: "I think it’s good for us; it raises the conversation of UC and video and that’s always good. It shows Microsoft nailing its flag to the consumer mast and it helps us because it allows us to go to the market and say it’s about having multiple choices and not locking yourself into one corner. It shows where the market is moving."
IDC also reckons the market is moving, and is predicting the UC market in EMEA will double by 2014. The firm believes the market, currently worth $8bn, will hit $16.6bn within three years. That may sound impressive, but Isabel Montero, senior research analyst, unified communications and collaboration, IDC EMEA, said the growth is "moderate" and will remain so beyond that three-year period, primarily due to the lingering effect of the credit crunch.
Shorten’s comments about "where the market it moving" is backed up by a number of big deals recently: Cisco’s $3bn acquisition of Tandberg and LifeSize’s $400m sale to computer peripherals maker Logitech being just two examples. Polycom too has been on the acquisition trail, getting HP’s Visual Collaboration business, including the Halo Products and Managed Services business, for around $90m.
As part of the deal Polycom will serve as an exclusive partner to HP for telepresence and certain video UC platforms, including both resale and internal HP deployments. The deal will enable Polycom to take advantage of HP’s installed base of visual collaboration products and technology. HP will resell Polycom’s UC platforms, including: personal and group UC services, UC infrastructure, UC managed services, and audio/video software.
At the same time as making the HP acquisition announcement Polycom also unveiled the Open Visual Communications Consortium (OVCC), a group that it hopes will drive telepresence and video conferencing adoption in businesses through openness and interoperability.
It’s a "global standards-based, multi-vendor, multi-network visual communication exchange", meaning companies will be able to use products from a wide range of suppliers without being locked into that company’s platform. The group will support telepresence and room-based systems as well as desktop and mobile platforms.
Describing this as the biggest news to hit the UC industry in a decade, and one that will change it forever, Andrew Miller, CEO of Polycom, says: "We want people to be able to use video conferencing as easily as they use their mobile phones, and hope that this consortium will help break down the barriers that have blocked adoption of video conferencing in the past."
In addition, and perhaps more telling in terms of the direction the industry is taking, Polycom will be looking to add its UC capabilities to HP’s WebOS mobile platform, particularly its TouchPad tablet device. This follows a similar deal with Samsung to provide Polycom products on the Galaxy Tab device.
With the way in which we work changing, with more and more people working remotely or while on the move, it is no surprise to see UC firms pushing the benefits of communications tools on mobile devices. Cisco’s Cius is a hardware/software combination that can integrate with other business applications from Cisco, such as Quad, Show and Share, WebEx Connect and Meeting Centre, Presence and TelePresence. Avaya too has recently extended its Flare Experience platform to Android tablets and is looking to expand it further to support RIM, Apple and Windows devices by the end of 2011.
Alcatel-Lucent recently unveiled a revamped UC platform that lets companies hold multi-party, -device and -media conversations and aims to move communications and collaboration from a traditional single channel to one that is much more flexible, the firm says. Called OpenTouch it works across a variety of devices – such as smartphones and tablets – and platforms. Users can hop between devices and can add and remove participants from the call without needing to break the conversation.
"70% of a worker’s day is spent on unproductive collaboration. The conversation has to change so it’s not just about call or email. It has to be multi-device, channel and media. Every conversation has to be productive," says Tom Burns, president of Alcatel-Lucent Enterprise.
Burns’ point about productivity seems to be the USP of UC platforms these days; the debate no longer revolves solely around how much money could potentially be saved through travelling less. "Certainly for our customers the speed to make decisions and the accuracy of those decisions is greatly enhanced by the immediacy of being able to make a call," says Polycom’s Gary Rider. "But also a lot of customers have a social responsibility so we’re also seeing the green side of it becoming a topic."
There is a phrase in the tech industry that is wheeled out when companies use their own products in-house. "Eating your own dog food" (or "drinking our own champagne", as Jo Hoppe, CIO of Pegasystems more eloquently put it a few years back) is certainly something Cisco is happy to do. The company claims internal use of its telepresence UC platform has saved it $436m in travel costs to date (based on four participants per meeting).
But the top-end telepresence systems are very expensive, so where does the ROI come from? The more people using the UC platform, the more value it will bring to a business. But that’s easier said than done of course.
"We find the most effective way is to work with the customer once they’ve bought the products to ensure the utilisation matches the business case. Utilisation is the key because [UC] does require a different mentality in terms of the organisation. If you leave it to the organisation to do that you may not get the utilisation," says Rider.
There are challenges to overcome to ensure a successful UC implementation, such as the necessary shift in culture to ensure high utilisation rates, but the ability to be able to know with a couple of clicks of a mouse button whether a colleague in another country is available for a call and to be able to see them during the conversation does make for more productive workers. No more wasted time sat in airports or travelling to or from meetings, just quick decision-making across the business.
