Skype Deal: A Way to Keep Microsoft Products Relevant?

Skype already drives users to Outlook contacts or emails

Around 1999, I moderated a Bay Area panel in which a crazy Swedish billionaire argued that telephone calls were just another form of content and that in the future AT&T would run ads during conversations.

"I'll be in San Francisco having a free long-distance phone call with my girlfriend in Sweden, and an ad for Coke will come on," he said.

We all laughed.

It was the first thing I thought about when Microsoft announced that it will buy computer telephony service Skype for $8.5 billion.

Why  would Microsoft pay so much for a service that most of its users don't pay for? Surely not because it thinks it can charge extra money to call landlines or cellphones, as Skype currently does. Skype's annual revenue of around $860 million is small change to Microsoft, which had revenue of $16.4 billion in its third quarter alone.

My guess is that Microsoft sees Skype as a way to keep its core products relevant, driving consumers who use free phone and texting services to use its core Office products — Outlook, Word, Excel, PowerPoint and Access — and vice versa.

This is, after all, what Skype already does. Anyone who uses the service frequently knows that it includes a setting to call people in their Outlook contacts or  emails.  I would expect that the Skype of the future will include copious ads for Microsoft products that link seamlessly to it.

Cable and big phone companies (including AT&T) already know that trick. They're bundling cheap telephony with TV programming and Internet because the more they can satisfy the consumer's every media need, the the less likely that consumer is to fly to another service. The cost of telephony is approaching zero, and you can already buy TVs that let you have Skype video calls while you're watching. Can phone ads be far behind?

Come to think of it, that billionaire wasn't so crazy after all. Maybe that's why he's a billionaire.