Microsoft Acquires Skype: EU Approval Confirmed

Earlier this week I reported an update on the status of the EU Commission approval, indicating that it appeared there would be no conditions placed on Microsoft’s acquisition of Skype. Today the final ruling came out with details behind the EU decision.

In their decision it is interesting to note they split out the consumer and enterprise markets:

In the area of consumer communications, the investigation found that the parties’ activities mainly overlap for video communications, where Microsoft is active through its Windows Live Messenger. However, the Commission considers that there are no competition concerns in this growing market where numerous players, including Google, are present.

For enterprise communications, the investigation confirmed that Skype has a limited market presence for these products and does not compete directly with Microsoft’s enterprise communication product Lync, which is used mostly by large enterprises.

it is essential for Microsoft that Skype’s services are available on as many platforms as possible in order to maintain and enhance the Skype brand

In their background explanation they looked at conglomerate effects, consumer communications services, enterprise communications services and other ways Microsoft could leverage leverage their consumer base for enterprise communications services:

As regards conglomerate effects, the Commission assessed the possibility for Microsoft (i) to degrade Skype’s interoperability with competing services and/or (ii) to tie its own products, in particular its leading Windows operating system, with Skype, thereby limiting other players’ ability to compete.

As regards consumer communications services, the Commission found that Microsoft would not have an incentive to degrade Skype’s current interoperability as it is essential for Microsoft that Skype’s services are available on as many platforms as possible in order to maintain and enhance the Skype brand . As regards the risk of tying or bundling, the Commission noted that the vast majority of consumers who acquire a PC with Skype already installed are registered Skype users and that most of them subsequently download a version different from the pre-installed one. Therefore, the proposed transaction will not change the current situation.

As regards enterprise communications services, the Commission found that Skype is currently not an enterprise product, therefore its interoperability is not decisive for competitors and a bundle or a tie between Skype and Microsoft’s products will not be a must have product for enterprises. Furthermore Lync faces competition from other strong players in enterprise communications, such as Cisco.

The Commission also assessed other ways with which Microsoft could leverage Skype’s large consumer base onto the markets for enterprise communications services but it ruled out negative effects on competition in the time frame relevant for the analysis of the transaction.

In other words the commission concluded:

  • Skype would degrade its own brand by failing to continue support for the multiple platforms on which it is currently and potentially available as as service
  • Skype has  made such significant market penetration that users who would encounter a pre-installed Skype on a PC would probably already have a Skype account and want simply to upgrade to the latest version.
  • Skype is not an enterprise product – confirming that, when it comes to the business market, Skype really has been a small business product at best.
  • Any attempt to leverage Skype’s consumer base into the enterprise market would not negatively impact competition.

Microsoft General Counsel  and Vice-President Brad Smith has commented:

We’re pleased that the European Commission has approved Microsoft’s acquisition of Skype. This is an important milestone, as we’ve now received clearance from both the United States and the European Union. We look forward to completing soon the final steps needed to close the acquisition, bringing together the employees of Microsoft and Skype, and creating new opportunities for people to communicate and collaborate around the world.

Bottom line: Microsoft is free to do as it wishes in terms of the integration of Skype into their business. At this point it’s really up to Microsoft, working with its Skype business unit, to determine how to successfully leverage Skype into Microsoft’s enterprise (and consumer) offerings to achieve the increased market adoption that justifies an $8.5B purchase price.

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About Jim Courtney

Bringing over thirty years' experience in the sales, marketing and management of cutting edge technology businesses.

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