What the Acquisition of Skype May Mean for Microsoft

If You Build It, They Will Come

Ralph Waldo Emerson is often quoted (though incorrectly) as saying “Build a better mousetrap, and the world will beat a path to your door.” It speaks to the dreamer, the entrepreneur, the artist in all of us.

Four such dreamers in the technology world are: Google, Facebook, Microsoft, and Apple. This week, Google, Facebook, and Microsoft faced each other down to compete for the acquisition of Skype, an online communications company, for $8.5 billion. Because sometimes when you haven’t built the better mousetrap, it’s just as effective to buy the company that did.

Facebook are building a new campus in Menlo Park, with space for 9,000 employees, and every online application seems to be linked to an imminent sale to the social networking giant. You have to think that Mark Zuckerberg is hatching a plot for the next big thing in the social media space.

Google and Apple are competing in the mobile and tablet arenas, trying to out-do each other on hardware, operating systems, and user experience. YouTube, part of the Google empire since 2006, have just rolled out their live streaming service, and the smart money might be best placed on when the service will develop capabilities to be used in user-to-user direct communications.

Which prompts me to wonder: were Google and Facebook really interested in Skype, or were they just pushing the price up to see if, or when, Microsoft would blink?

A New Arms Race

From the Cold War to the Space Race, we’ve been thrilled by watching fast iterations of technology, striving to produce better and better military equipment than the other guy just developed. Welcome to technology in the new millennium.

When the dust settled after the IT bubble burst around the turn of the century, Gates, Jobs, and Brin held on, and then began to pull the world with them. When a punk-kid programmer from Harvard joined them in 2004 the gears of a second Internet bubble began moving.

Or maybe it’s not a bubble. Maybe it’s something bigger, something more important. Perhaps we’re on the verge of the Communications Race. The Face Race. That’s why the acquisition of Skype was so important to Microsoft. It’s why Google and Apple are building better mousetraps in the mobile sector, and why Facebook is constantly reworking the ways its users can communicate with each other.

Red Queen Effect

There’s a passage from Lewis Carroll’s “Through the Looking-Glass,” where the Red Queen tells Alice ” takes all the running you can do, to keep in the same place. If you want to get somewhere else, you must run at least twice as fast as that!” It’s the drive to run faster that lives in the minds of Steve Jobs and Bill Gates, Mark Zuckerberg and Sergey Brin. Those guys are busy thinking right now of how to make their mousetraps better.

But when the price-tag is $8.5 billion, what’s the pay-off? Where’s the return on investment?

Well, it’s likely that Google’s AdSense, and Facebook Ads, along with Apple’s iStore, will be the main revenue generators. They’re certainly the most ubiquitous means of building revenue.

And that’s what makes Microsoft’s retail therapy all the more intriguing. Microsoft don’t have access to the easy revenues enjoyed by Google, Facebook, and Apple. Not in the back-yards of those competitors. Instead, by adding Skype to the Windows Mobile platform, by adding it to their Xbox so video-gamers can video chat as well as voice chat, Microsoft aren’t challenging the other players in their own spaces — they’re challenging Sony and Nintendo for the next innovation in gaming, and may turn the next Xbox into the home theater and communications device that no home should be without.