Skype sale

On Tuesday, Microsoft announced that it had acquired the Luxembourg-based, Estonia-founded Internet phone company, Skype for $8.5 billion (6 billion euros). In February, Microsoft and Nokia struck a sweeping deal that would bring Windows Phone operating system as its "principal smartphone strategy," and where Nokia would "drive the future of Windows Phone."

To learn more about the alliance, Deutsche Welle turned to Linnar Viik, a man often called the father of the Estonian Internet. Viik was instrumental in implementing the country's "Tiger Leap" project in the late 1990s, which wired all Estonian schools and established free Internet stations around the country. Later, he was a director of product development at Skype and is now the rector at the Estonian IT College in Tallinn.

Deutsche Welle: This deal has gotten a lot of attention around the technology world and in Estonia, too, I'm sure. Why is this deal a good thing for Skype?

Linnar Viik: Skype has been successful in the retail business, but despite its effort to build up a close relationship with the business community and a good product offering, it has not become “sticky” to the business user at anticipated levels. That can be reflected in Skype revenues: The vast majority of Skype revenues are still related to the retail users. So I think the big network of business reselling and value-added partnership of Microsoft, formally present around the globe, could be an extremely good integrating channel into a business productivity [application] with the functionality of Skype.

On a business level, Microsoft does not have such an offering at the moment. I believe strongly that from a business communication and group-working and networking perspective, Skype adds value to Microsoft, and Skype can also benefit from the Microsoft network.

Also, I think that the presence of Microsoft's most successful products, the Office family, in the business use, could be a splendid case (…) where Skype would be closer to a number of Office applications, or integrated more closely with Office applications.

When we look to the peer-to-peer architecture of Skype, it has not - so far - enabled a partly offline communication. For example, if I'm offline and I send you messages, you will only get them when I appear online. The mixed architecture opportunities combining Microsoft's strong cloud competence with Skype's peer-to-peer architecture could also enable a so-called offline presence in the beta functionality than Skype has implemented so far.

If we look at Microsoft further, and the future of the devices, they are believers of operating systems being present in TVs, tablets, mobile phones, laptops, PCs, and on top of that, a number of productivity applications or entertainment applications. And that would enable Skype to be positioned as something to be bundled in a TV of the future, or an entertainment of the future.

A big company like Microsoft is not known for being fast or particularly innovative, though they did develop Windows. Are you worried at all that this will slow down the innovation at Skype?

Perhaps I'm naive, but I'm not worried about it. I have seen the success of the [video game system] Xbox. One could say, ‘What does it have to do with Microsoft?' Well, it has a lot to do with it. It's a splendid example of how Microsoft can be fast and innovative within the very established, yet the quickly evolving segment of the entertainment industry - and has been able to take its position on the market.

When we look at the Kinect, the new advancement of the Xbox, I see a huge jump within the youth use of its products and one might say that it has nothing to do with Microsoft. But it has a core competence behind that. It's not fair to say that the innovation and the rebelliousness only go back to the 1990s and hasn't done anything lately. The way Microsoft has been building up its cloud and cloud-based services also have a good competence base and talent base for relatively fast innovation.

Looking on the other side, Skype has a very talented team and I believe very strongly that it will not be wasted. You can buy Skype and just shut it down but that would be an extremely stupid step. But if you want to keep and develop it, you keep the competence.

What's been the reaction amongst your former Skype colleagues? Overall, is the attitude positive amongst the employees?

Let's say we have mixed feelings. The people who have been working on Skype for several years have seen different owners. They have seen private ownership, they have seen being owned by a stock-listed eBay, which was talking about synergy between PayPal and was skeptically appreciated by the Skypers. The synergy required strong fantasies to imagine, and people were not really convinced of these solutions. Then, after eBay, again, private ownership and preparations for being stock-listed. While being owned by eBay, eBay recognized that this synergy didn't work out so well. [Eds: Prior to the Microsoft deal, a Skype initial public offering had been in the works.] The rumors about the unknown future were around for a long time. For the sake of peace of mind, that deal was anticipated by a number of Skypers. The rumors were about Nokia acquiring Skype or Google acquiring Skype, or other players out there with piles of cash approaching the owners were devastating and not so good for the morale of the company.

Also, a number of people at Skype were not convinced as to what would happen to the company if it was stock-listed. What are the regulations of a public company which works very closely towards the privacy of its users? The present deal is welcomed as an arrival of a safe harbor. Most people at Skype have been working closely with Microsoft. The Microsoft platform has been the biggest platform for Skype. People know very well the Windows architecture, the server architecture, and have been working very closely with Microsoft developers. It's a known beast, a known partner. And we know from history that Microsoft is a good integrator and won't just let you hang out somewhere in the corner, but will take an active discussion role about the mutual future. So I'm a strong believer in the deal.

Are there obvious products or obvious directions that you would see in the next year or two years that you think would make sense for Skype and for Skype users?

In mobile business, many things happen very quickly. One year's time would be good to anticipate the Microsoft-Nokia-Skype jointly powered smart tablet and smartphone devices. It would be very interesting to look at the chipset level and the radio level, the engineering brilliance of Nokia. It will be very interesting to see how close to the architecture level Skype could be integrated for superb audio and video quality. And to be honest, the way that we see video conversations will be different in the years ahead. I'm focusing on mobile-rich conversations, with voice, video and joint video conversations in the background on the mobile, and that could be implemented very well in a collaboration which requires a splendid engineering competence which is present in all three areas: Skype, Nokia and Microsoft. That would be an area where I see one of the strongest competitive advantages of this type of collaboration.

So in other words it will make Skype work much better and more integrated into the Windows Phone operating system?

Yes, and that would be a new area for Microsoft. Because they have never been dealing with a mobile operators. And at the end of the day the mobile operators are the owners of the users from the traditional architecture perspective. However, when we're looking to a network neutrality-based system, or a perspective where the network operators will be more pushed to wireless broadband pipelines, that will be a huge success for Nokia, Microsoft and Skype and might be that the billing architecture which is well-established at Skype with Skype credit, and supports and suits retail but also business users, could also be something that has a strong competitive advantage for that synergy.

Interview: Cyrus Farivar
Editor: Kate Bowen