Why Microsoft is acquiring Skype at $8.5 billion?

Microsoft has landed a juicy deal as it snatched Skype from the jaws of Google and Facebook in an $8.5 billion acquisition.

Microsoft confirmed the $8.5 billion cash deal from the investor group led by Silver Lake. Having lapped the cynosure of VoIP industry, Microsoft now gets access to Skype's 170-million connected users.

The deal follows the technology behemoth's earlier agreement with cell phone maker Nokia under which the two companies agreed to pool their assets which translates into Nokia using Microsoft's WP7 OS for its upcoming phones.

Microsoft announced that Skype will support its array of devices like Xbox, Kinect and Windows Phone and also integrate with its own unified communication platform Lync, Outlook and Xbox.

Microsoft's need to move early was triggered by last week's reports that Facebook and Google were vying for Skype. Also it was reported last year that Cisco was eyeing Skype to leverage on its video-conference technology.

Google and the cloud factor:

The VoIP landscape was significantly re-shaped when Google started offering its own calling service Google Voice over Gmail. Google's services are currently free, which is a challenge for Skype, as it charges its users for making calls through SkypeOut. But making calls through Gmail to phones in U.S. and Canada is free.

To counter Google's dominance in VoIP space, Skype becomes a key arsenal in Microsoft's armory.

However, the acquisition of Skype also raises questions about what is the future of Microsoft's service Lync which is described on its website as a single interface that unites voice communications, IM, and audio, video, and Web conferencing into a richer, more contextual offering. Lync is currently offered as part of Microsoft's SaaS offering, Office 365, which competes directly with Google's productivity suite Google Apps. Skype could, thus, be integrated with Lync and its cloud-solution Office 365 to offer a complete unified communication solution with VoIP.

Facebook Integration:

Another prospect that Microsoft sees is Skype's integration with Facebook. Skype confirmed in Oct. 2010 that it has integrated Facebook news feed and Phonebook in its new version for Windows. Skype's integration with Facebook allows users to view Facebook news feed in Skype and also allows one to call and sms Facebook friends on landline and mobiles. This bodes well for Microsoft as it gains access to Facebook's user-base of 500 million, a scale that allows it to match Google. Microsoft has been following a similar strategy as it tied up with Facebook which gives it access to show Facebook data on Bing search engine.

Enterprise Integration:

While Skype certainly offers Microsoft the opportunity to reach regular customers, Skype's partnership with Avaya provides it an opportunity to further target the enterprise customer base. At the enterprise level, Skype has partnered with business communication solution provider Avaya to integrate their IP-based communication allowing users to collaborate between Avaya and Skype, primarily to address business customer needs. Also, Skype appointed Cisco's Senior Vice President Tony Bates as its CEO last year, who was the General Manager of Cisco's Enterprise, Commercial and Small Business Division, which granted credence to Skype's ambition to target the enterprise segment. Thus, Microsoft can utilize Skype's VoIP service as both consumer-graded and corporate-graded.

Video conferencing:

Microsoft can also avail Skype's video conferencing capabilities. Skype launched last year a video-calling service that allows a group of 10 to connect over the web. NYTimes in August 2010 reported that video calling represents 40 percent of total calling time on Skype, and analysts say this could grow further as the proliferation of smartphones enables more people to place such calls while on the go. This bodes well for Microsoft's WP7 and tablet strategy.

Skype benefits from the acquisition as it can evolve into a unified communications platform and Microsoft gains as it can plug the VoIP hole in its attempt to be a unified communications provider.