x Abu Dhabi, UAESunday 23 July 2017

Microsoft's acquisition of Skype opens battle lines with Apple

Microsoft's $8.5 acquisition of Skype signals the start of a competitive offensive against Apple and will also loosen the restrictions on VOIP in the Middle East.

Steve Ballmer, the Microsoft chief executive, says the purchase of Skype is a significant opportunity to expand the company's business. Kimihiro Hoshino / AFP
Steve Ballmer, the Microsoft chief executive, says the purchase of Skype is a significant opportunity to expand the company's business. Kimihiro Hoshino / AFP

By buying Skype, the free video conferencing service, Microsoft has declared all out war on arch-rival Apple and now stands ready to make further strategic acquisitions.

Steve Ballmer, Microsoft's chief executive, has finally cracked open his war chest of more than US$40 billion (Dh146.92bn) and the market anticipates more purchases.

After paying $8.5bn for Skype's internet-based video conferencing system Microsoft will be able to go toe to toe with Apple in the consumer market and leapfrog competitors by incorporating the service into its business software.

But analysts believe Mr Ballmer's career could be on the line if his acquisition strategy does not deliver all he hopes.

"If nothing comes of the Skype acquisition, it could be curtains for Steve Ballmer," says Richard Edwards, an analyst at the international research firm Ovum.

Mr Edwards says Mr Ballmer is not likely to concede victory to rivals such as Apple and Google, which is enjoying meteoric success with its Android mobile phone software, without a fight in the mobile space.

He believes further Microsoft acquisitions may already be in the pipeline to enable Microsoft to attract consumers to phones running its software by bundling it with services such as Skype.

Microsoft's strategy of making new acquisitions follows its partnership agreement with Nokia, whereby Microsoft provides software for Nokia handsets. The only missing ingredient in the Microsoft-Nokia alliance is consumer-friendly services to combat Apple applications such as FaceTime video conferencing and the iTunes music service.

But, in addition to mobile phones, new services such as fully integrated video conferencing would also help Microsoft, based in Seattle, to strengthen its grip on domestic computing. By integrating services such as video conferencing into its XBox games consoles, Microsoft could enable gamers to hold strategic conferences with one another, irrespective of which country they are in.

But free Skype-style communications services aimed at consumers have effectively been banned in some Middle East countries such as the UAE, Bahrain and Saudi Arabia. According to Ovum, some countries are reluctant to allow free mobile phone voice calling over the internet because it could endanger the huge long-term investment countries such as the UAE have made in their telecommunications infrastructure.

However, analysts believe it is in the business rather than the consumer space where the Skype acquisition may first start to pay off. Allowing Microsoft to introduce Skype-style video conferencing into its business offering could be the start of a more general acceptance of free and low-cost internet voice and video conferencing.

"Eventually, we could see Skype video-conferencing bundled as an element of Microsoft's business and consumer use software," says Kevin White, an Ovum analyst based in Dubai.

"The Telecommunications Regulatory Authority [TRA] in UAE allows the licensed operators Etisalat and du to provide VoIP [voice over internet protocol] services to business customers. Like in other regions, the telecoms operators understand that video-conferencing is a crucial tool to enable business communications in the region, and are developing offers and commercial propositions to sell telepresence, video-conferencing and managed video services," he says.

This could also increase demand for Skype-style mobile phone services among professionals who also wish to use them as private consumers. Telecoms operators such as du and Etisalat would then be under pressure from customers to allow mobile video-conferencing for consumers.

"Use of Skype in the UAE is widespread but, formally, the application is effectively blocked by the operators under the direction of the TRA. We expect this to be loosened progressively," says Mr White.

Growing markets such as the UAE represent a particularly lucrative telecoms opportunity for Microsoft, particularly in the light of its partnership agreement with Nokia, which, unlike Apple, manufactures millions of low-cost phones as well as high-end smartphones.

"Presently, the UAE is arguably one of the most lucrative telecoms markets in the world. It already has a mobile phone penetration rate in excess of 200 per cent, which means that, on average, people in the UAE have at least two phones each. Added to this is the fact that a majority of the UAE population are expats with an almost constant need to communicate internationally with business colleagues, friends and family back home and vice versa," says Mr White.

Microsoft declined to comment on future acquisitions or on its plans for Skype in the Middle East.