On Tuesday, the sun set in the East. Water ran uphill. And Redmond, WA-based Microsoft agreed to pay $8.5 billion in cash for an Internet company that gives away much of its service for free. The news could only be more de-polarizing if Luxembourg-based Skype Technologies had developed its Internet-based telephone service as open source technology.
What is the world coming to?
In a quest for deeper understanding of the single biggest deal in Microsoft history, I turned to one of Skype’s smallest rivals. Bryan Hertz is the founding CEO of Telcentris, a San Diego-based telephony startup that created VoxOx, a rival that provides free, “technology agnostic” communications via the Internet. VoxOx introduced its first mobile app a few weeks ago. The company, which also operates as a competitive local exchange carrier, was founded five years ago by an unknown team that previously provided data networking and software development for broker/dealers. He responded by e-mail to my questions, which I have edited.
Xconomy: What do you see as the broader ramifications of the Microsoft-Skype deal?
Bryan Hertz: We witnessed some mixed reactions to the announcement, ranging from the press to social media to the NASDAQ. The perception issue tracks back to Skype’s origins in Kazaa. People saw Kazaa and then Skype as a way of “beating the system.” Microsoft IS the system, so it’s easy to assume the worst.
It is entirely possible, however, that Microsoft could continue to operate Skype as an independent division, (much like Zappos within Amazon). If they are smart, that’s exactly what they’ll do. It’s actually hard to imagine they’d fall into the trap that everyone thinks they’ll fall into, and completely stifle innovation at the company they just paid $8.5 billion to acquire.
It also is important to note that Microsoft has become a business-focused brand. Not that they don’t have consumer products, but the public doesn’t perceive them that way. (The Apple commercials with the actors portraying Mac and PC are a great example. The PC—aka Microsoft—is portrayed as older and “all business.”)
X: Any predictions on what will happen to Skype’s freemium model and pricing?
BH: Microsoft’s business focus could mean some changes for Skype users, as Microsoft is likely to steer towards augmenting their paid business services like Lync and Office. As has been the case with previous Microsoft acquisitions, we expect we will see premium features integrated into Microsoft’s Office, Collaboration, and Home Entertainment solutions. As far as the freemium package is concerned, we don’t see an obvious solution to changing this offering without destroying the existing expectations users have developed of the Skype service.
X: How far-reaching is this deal? Would you expect it to affect cable companies?
BH: We don’t foresee an immediate impact, although if Skype is integrated into the living room via the Xbox, users will be less compelled to maintain a Cable-provided phone line, which already is a trend we’ve seen building in recent years. The long-term winner in this game will be the company that has the infrastructure to take it to the telcos. We foresee a lot of action in this space now.
X: What does the deal mean for VoxOx?
BH: This is an exciting development in our space, but VoxOx remains the only true multi-platform, multi-network open communicator. We see this move going more in the direction of a large corporate brand, rather than an open communication service like VoxOx.
