How $8.5 billion for Skype makes sense

Skype-Adaptor-SkypeMate-Box-with-High-Quality-Of-VoiceMany pundits have speculated on Microsoft’s Skype purchase and the rather large price tag, and here is my 2c.

While many have looked at the video calling angle with Skype, Skype is also much more strongly associated with voice calling than Microsoft’s own Windows Live Messenger.

What Skype potentially gives Microsoft is the ability to become the biggest phone carrier in the world, a sort of meta-carrier that is location and technology agnostic, with calls possible over ethernet, WIFI, 3G, WIMAX or LTE, all using a a technology that works over the near unblockable port 80 and 443.

Skype is also platform agnostic, meaning it will (and already does) work on Linux machines and Android phones and even iPhones. Skype will also work on Windows phones, and when it comes to VOIP the advantage of being fully integrated is much, much stronger.

And of course it works on the several billion Windows computers also, where without Justice Department supervision Microsoft will be able to push Skype much harder than previously.

Add in cheap Skype boxes like pictured above (which connect phone handsets and home broadband), extending the network effect even further into the home, and Microsoft could have a massive telecommunication revolution in their hands.

The question of course is why the carriers would agree to ship Windows phones if they have strong VOIP functionality.  The answer is of course the data plans, which are now more or less mandatory with smartphone purchases.  By adding additional value to the dataplans beyond the web and facebook carriers will find it a whole lot easier to convince the 50% of feature phone users currently still resisting the move to smartphones with expensive data plans.  Since carriers already bundle data plans with unlimited voice it does not really matter if Skype VOIP cuts into their voice minute usage, and it gives users a reason to upgrade to new 4G data plans, which will otherwise be of limited additional benefit, and which of course cost more than 3G data plans.

Skype’s P2P technology uniquely means all this expansion happens without the need for a massive server investment, making the network extremely cheap.

So how much is a massive phone network that connects all PCs, smartphones and possibly a good portion of landlines worth?  If Microsoft could pull it off, $8.5 billion may look very cheap.