Solution Providers To Microsoft: Don't Mess With Skype

When Bob Venero, the CEO of Future Tech, a Holbrook, New York solution provider that recommends Skype to international customers, learned Tuesday that Microsoft was buying the Internet video communications provider in an $8.5 billion blockbuster cash deal, his heart sank.

"I was concerned when I heard about the deal," said Venero. "Generally when Microsoft gets their hands on something it becomes more convoluted. The biggest danger for Microsoft is letting this get caught in the Microsoft bureaucracy.

"The worst thing they could do is mess with Skype," said Venero, who also uses the Skype Internet communications video service for international business. "Microsoft needs to think about growing and expanding Skype -- not constricting it."

That means not fine tuning Skype to work only with Microsoft products, Venero explained. "Skype works on the Apple iPad and iPhone and it has for quite some time," he said "Are they going to continue down that open path or are they going to make it a Microsoft only product?"

Venero is not alone. Solution providers say that whether the $62 billion software behemoth succeeds or fails with Skype rests on whether Microsoft maintains Skype as an open Internet platform as well as how it integrates it into the sprawling Microsoft product set. Also critical, partners said, is exactly how Microsoft leverages its tens of thousands of partners to monetize the popular Skype service.

Microsoft's acquisition of Skype represents the software giant's largest acquisition ever giving it a new foothold in the Internet consumer market, where it has struggled recently.

Skype, one of the world's most popular VoIP services, had 170 million connected users and accounted for more than 207 billion minutes of voice and video conversations in 2010, according to the companies. It will become a new business division within Microsoft, titled Microsoft Skype Division.

"I'm assuming it's going to be available to the channel, otherwise they'll be missing a big opportunity," said David Phillips, president and COO of York Telecom, an Eatontown, N.J.-based solution provider and A/V communications and managed services specialist. "It's a question of how they're going to integrate it. You now have the possibility of scheduling with videoconferencing on the desktop. This could consolidate the desktop. It also brings a B-to-C (business to consumer) component to it as well."

"It can potentially challenge a lot of the traditional areas of videoconferencing in a way they haven't been before," Phillips said. "Given Microsoft's brand, given (Microsoft Office Communications Server) OCS and the linkages and everything else, I think it's going to be very interesting."

Phillips said he's curious to see whether the Skype move changes Microsoft's relationship with Polycom -- which is tightly integrated with Microsoft's Lync unified communications cloud platform.

Gary Berzack, managing director and CTO of eTribeca, LLC, a New York City wireless solution provider, said it is likely Microsoft will integrate Skype with Lync as an international gateway into the cloud driving inbound and outbound call center traffic with both business class and consumer service offerings. "The question is: how do they monetize it both on the consumer side and the business side?" he said.

Microsoft CEO Steve Ballmer Tuesday said driving Skype adoption in business will be a priority for the company especially with the potential synergy between Skype and Lync and other business-focused Microsoft products.

NEXT: Reshaping The Internet Telecommunications Market

Berzack said the deal could potentially reshape the Internet telecommunications solutions market. "This essentially makes Microsoft a phone company overnight," he said. "Putting voice into the cloud is going to be the secret to making this successful with the channel doing the integration and migration for businesses."

That said, Berzack cautioned that it's too early to tell just how big an opportunity the Microsoft Skype acquisition will be for solution providers. "We have to see what the road map is for the technology," he said. "It's hard to absorb all the implications right now. I can not fathom how Skype got a valuation of $8.5 billion. There could have been a silent bidding war and Microsoft bought it to stop someone else from getting it." In that case, Berzack said, Microsoft runs the risk of "marginalizing" the Skype technology.

Dr. Jane Linder, managing director of NWN, one of the fastest growing enterprise solution providers in the country, said Microsoft is too smart to mess with Skype's open architecture or not use the channel to exploit the Skype opportunity. "Microsoft bought Skype because of where it fits into the solutions constellation and how it compliments what they already do," she said. "I can't see them changing the fundamental open characteristic of Skype. They are smarter than that."

The acquisition also marks a new chapter in the Microsoft versus Google battle. "Google Voice was gaining some traction with consumers," she said. "This doesn't let Google walk away with the voice business. Microsoft is in this for the long haul."

Linder said the Microsoft Skype deal is yet another example of how consumer technology is moving into the enterprise solutions market. "Business people are showing up with consumers tools at work and they want to use them," she said. "In the old days, the IT department just said; 'No you can't have it. You have to use what we give you otherwise we won't support it.' IT departments are now bringing these tools into the mix because their internal customers love them."

As to how enterprise partners like NWN monetize the Skype opportunity, Linder said she sees it as similar to the Microsoft Office model where NWN does not make software licensing revenue but provides high end integration and compliance services.

"The way we monetize Skype is the same way we monetize Microsoft Office making sure it is secure and integrated with the other things our customers are doing," she said."I see this as Microsoft giving us a broader set of offerings to satisfy our business customers."

NEXT: Can Solution Providers Can Make Money With Skype?

Nadeem Ahmad, global technology director for Dimension Data, one of the world's largest systems integrators headquartered in Joahannesburg, South Africa, said from a consumer perspective, Microsoft’s Skype buy makers perfect sense, but the enterprise implications are not immediately clear. ’They know everyone in the consumer world is using Skype,’ he said. ’They’re seeing an opportunity to corner that market on the conferencing side.’

Ahmad said the Skype acquisition works with Microsoft’s bid to dominate in both the home and the office and Skype also plays into its mobility story, where it can be used as a de facto voice/conferencing service for tablets.

Sean Connolly, general manager and vice president of network integration at Dimension Data, says the acquisition gives Microsoft the ability to strike on the merging of consumer and business IT. ’It enables Microsoft to seize that opportunity,’ Connolly said.

Microsoft responded to requests by CRN for additional comment on the channel integration by referring CRN to Microsoft's Skype acquisition press Web site.

Glen Coffield, president of Smart Guys Computers, a Lake Mary, Fla. system builder and computer retailer, said Microsoft needs to provide a compelling monthly recurring revenue services opportunity for partners with Skype. Coffield's advice for Microsoft: give system builders that preinstall Skype recurring revenue for as long as the customer maintains that Skype subscription.

"Right now vendors want to give you a small activation fee with no recurring revenue," he said. "They'll kiss you one time but there is no relationship. If you want to keep the channel healthy you have to go for hearts and minds with margin. You have to show us respect and stop throwing us bread crumbs.

"The big question for Microsoft with the channel is: how do I make money with it?" Coffield added. "Where is the margin?"

As Microsoft expands into new markets, Coffield cautioned that there is also the threat of the software giant becoming a "jack of all trades and a master of none."

Alan Weinberger, chairman and CEO of The ASCII Group, a Bethesda, Md.-based organization that provides business-building tools to thousands of VARs, said Microsoft will need to make clear to partners how Skype will be integrated and how much it will restrict Skype integration with non-Microsoft solutions.

"Is Microsoft going to discriminate against a VAR if they decide to use Skype from somebody else? Will it be unbundled from Microsoft?" Weinberger asked.

Weinberger and ASCII held several meetings with Skype shortly after Skype launched its formal partner program in September. While there was a lot of initial interest in Skype as a channel player, Weinberger said, it was hard for VARs to understand how they'd make money selling Skype.

There was some discussion, Weinberger said, but Skype retrenched a few months later and a lot that discussion petered out. Like Coffield, Weinberger said that for VARs, money making opportunities will be top of mind.

"Obviously the VARs would like to make a buck on it," Weinberger said. "So we'll have to hear how Microsoft is going to integrate this."

Andrew R. Hickey Contributed To This Story