Has Ballmer gone bananas?

[By Candice Jones]

Tuesday’s announcement by Microsoft CEO Steve Ballmer that it will buy Skype for a whopping US$8,5bn hasn’t been universally welcomed. Many critics are questioning the logic of the deal, with some saying the software maker is paying far too much for a company that is bleeding money.

Now, some investors are calling on Ballmer to explain his plans in more detail, comparing the deal to other bad acquisitions the company has made over the years.

Could they have a point? Has Ballmer gone bananas? Yes, this is the largest acquisition Microsoft has made in its history, and it paid more than twice what other bidders were reportedly offering. Some speculate the company was only trying to keep Skype out of the hands of its competitors’ hands. Those rivals include Google and Facebook.

But one aspect of the purchase seems to have escaped most of the commentary. Microsoft didn’t only buy the world’s largest voice-over-Internet Protocol provider. It also bought what could become a giant social network.

In 2007, when Skype was first becoming popular among the masses, there were hundreds of articles published about how Skype could trump Facebook, if it decided to switch its focus. At the time, Facebook was smaller than MySpace. Today, Facebook has nearly 700m registered users, and MySpace is fading into irrelevance.

Skype could have been Facebook, but it never had the right ownership to pull it off. It stalled while part of online auctions giant eBay, and underwent no real innovation during that time.

Although it did enjoy better prospects under the investment group led by Silver Lake, which took over the company, there was still insufficient vision.

As a peer-to-peer system, Skype already offers a bunch of features that social networks do, plus it adds voice and video calling. It offers online status, real-time chat and, to some extent, allows for the sharing of content.

Facebook offers instant messaging, like Skype, but it doesn’t provide telephony and video calls.

Microsoft’s acquisition of Skype gives it access to 663m registered customers and a product that can bridge its many disparate offerings into a single social network. Consider being able to receive a call from your best friend while playing an Xbox game, or on your Windows Phone 7 device, or while working on your desktop PC through Outlook, or even from your Linux box while using Microsoft Office in the cloud. Just create a single sign-on and you’re done.

Microsoft and its CEO, Steve Ballmer, know the value of Skype to its full suite of products. The long-term value will be in what the company can do with Skype: build a cohesive, cross-platform social network. Has Ballmer gone mad? I don’t think so. The real question is: can Microsoft execute on its vision?

• Candice Jones is deputy editor of TechCentral

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