The merger between Microsoft and Skype gave Microsoft access to versatile mainstream applications which support video calling and conferencing, which were previously predominantly in Apple and Google gadgets. Microsoft wanted to utilize internet calling to make up for a lost time in mobile and web applications. The firm was eager to pay what some thought was a high cost to meet Skype’s outstanding financial obligations and keep other contenders, such as Google, from procuring the firm (The Economist, n.d.).
Everything considered, the merger was well-planned, and it was also an endeavor to stretch out the ability to incorporate the service into other Microsoft products. In particular, Microsoft intended to include Skype in its other products, such as Outlook email, Windows cell phones, Xbox diversion comfort, and corporate telephone programming (Mouré, 2021). This move was plausible given that Skype had over 170 million monthly clients at the time, paying for its premium services.
Before its acquisition, Skype was more of a consumer brand. While the company may have had sales programs in place with ShoreTel, Avaya, Cisco, etc., none of those companies were willing to make Skype a priority (Affeldt & Kesler, 2021). The company also did not have a set enterprise sales force. Lastly, Skype was competing for voice with some very entrenched and established telecommunication companies, and none of them were lining up to be Skype’s partners (McLean, 2021).
However, after the merger, Microsoft earned revenue from Skype by charging users for value-added services like telephone numbers and business systems. They also sold advertising against user attention and had income from telecom partnerships (Affeldt & Kesler, 2021). However, Microsoft does not often provide enough detailed revenue figures to understand Skype’s costs as a standalone business unit. The situation was complicated further by the development of Teams, a Skype spin-off product from Skype for Business, which has its place in the parent company’s portfolio.
On the business side, Skype has had distractions, but it continues to refine its focus and add staff. According to Onyusheva and Gulla (2021), one of the factors that kept the company from doing more includes the failure to allocate a promotion budget. Initially, Skype did not educate companies on how their products fit in the workplace. Until recently, workplace adoption was still through a colleague, partner, supplier, and customer referral and from employees who use Skype at home bringing it to the office. After its merger with Microsoft, Skype assembled its first inside and outside business sales teams to pursue division and company-wide deals in large enterprises (McLean, 2021).
In this regard, the company is using Push Marketing as an enterprise strategy. The company has invested its research, development, and marketing budgets for a push marketing strategy to drive sales through strategic product placement. According to Mouré (2021), the company has overcome objections by industry gatekeepers, hoping to become an approved, default, and universal purchase like Microsoft Office and RIM Blackberries. For example, Skype Connect establishes relationships with finance and telecom departments, a potential foothold for future contracts.
On the other hand, other observers opine that a Pull Marketing strategy would directly appeal to Skype’s users. According to Lopez and Vialle (2017), Skype’s current business marketing and product development ignore the masses who use and champion Skype at work. Ideally, a Skype client would make the application’s attributes obvious, and the benefits would be easily modeled for colleagues and shared as they are used. Lopez and Vialle (2017) recommend adopting a Pull Marketing strategy, which would benefit the company more as it has already created a demand for its product. The marketing strategy would give customers viable reasons to stay logged into the Skype network (by receiving IMs and calls).
The strategy would also demonstrate to clients how using Skype supports their personal goals, including career success, job security, enduring professional relationships, and belonging/teaming (Lopez and Vialle, 2017). Furthermore, the strategy would demonstrate how Skype affirms its clients’ personal and institutional values.
Today, Microsoft earns revenue from Skype in various direct and indirect ways. For instance, its direct revenue from the company comes from subscriptions and other service sales to consumers. The way Skype is set up, a consumer pays for PSTN (Public Switched Telephone Network) to interconnect so people with regular phones can reach them on Skype (Lewis et al., 2017). Furthermore, royalties on Skype-related or co-branded products like webcams, headphones, and conferencing gear have been consistent revenue earners for the company. Skype for Business, which makes workplace telephony gear, such as Unified Communications software, and provides services to SMBs and enterprises, is also a significant revenue earner (Affeldt & Kesler, 2021). Indirect revenue contributions from Skype include the company’s ability to make other Microsoft products more valuable through its social elements, such as directory, contacts, IM, calling, and conferencing.
After the merger, many observers held that the $8.5 billion acquisition arrangement struck between Microsoft and Skype was undoubtedly a defensive strategy to stave off its immediate rivals, Google and Facebook. For example, had Facebook or Google obtained Skype, it could have exceptionally enhanced Skype’s video calling highlights and taken advantage of other inbuilt frameworks and innovations that Skype had already set up (Čirjevskis, 2019).
Since then, Microsoft has leveraged the merger by integrating it into its many platforms. Since the Microsoft acquisition, Skype’s market share has also grown from 13% to 45% in 2017, meaning that its users have more than doubled over the period (Lewis, 2017). Therefore, while initial reports and analyses of the merger were skeptical, Microsoft has proved that it can leverage the company’s strengths despite the undeniably stiff competition within the sector.
References
Affeldt, P., & Kesler, R. (2021). Big Tech Acquisitions—Towards Empirical Evidence. Journal of European Competition Law & Practice, 12(6), 471-478.
ÄŚirjevskis, A. (2019). The role of dynamic capabilities as drivers of business model innovation in mergers and acquisitions of technology-advanced firms. Journal of Open Innovation: Technology, Market, and Complexity, 5(1), 12.
Lewis, A., Richard, P., Sharp, P., & Maximo, R. (2017). Skype for business unleashed. Inpolis journal. 6(2), 17.
Lopez Giron, A. J., & Vialle, P. (2017). A preliminary analysis of mergers and acquisitions by Microsoft from 1992 to 2016: A resource and competence perspective. Web.
McLean, A. P. (2021). A financial capitalism perspective on start-up acquisitions: introducing the economic goodwill test. Journal of Competition Law & Economics, 17(1), 141-167.
MourĂ©, C. (2021). ‘Soft-wars’: The Differential Trajectories of Google and Microsoft – A Capital as Power Analysis. Web.
Onyusheva, I., & Gulla, N. (2021). Mergers and Acquisitions as a Source of Business Restructuring. The Euraseans: journal on global socio-economic dynamics, (5 (30)), 104-115.
The Economist (n.d.). The method in Microsoft’s merger madness. Web.