Microsoft has a few ways it goes about building out a presence in a market. The first, and the most rare, is that the develop a product in house from scratch to compete directly in a market that’s currently booming. The most recent examples of these sorts of products are the Xbox and the Zune both wholly developed by Microsoft to compete in the gaming and portable music player industries respectively. The second way they establish themselves in a market is to buy out either the top competitor or one of the more successful competitors as they did for things like Softricity who were the leaders in application virtualization software. Lastly sometimes they’ll say they’re getting into a market but will never make any serious attempt to do so just to kill off any potential competition, which they attempted to do back when the iPad was still a rumor and they announced the Courier tablet which failed to materialize.
Whatever strategy they adopt to establish themselves in a chosen market there’s always one common theme to their approach: throw money at the problem until it becomes successful. Now this isn’t a strategy that every company can adopt (realistically only a minority can) but Microsoft is usually so flush with cash that they can afford years of losses without it posing any sort of risk to their core business. Most notably they did this for a good 7 years with the Xbox division before it managed to turn a profit, sinking billions of dollars into the product before it actually made them any sort of money. They also continue to do it for products like the Zune which continues to languish behind Apple’s iPod but that’s still got a couple years before it reaches the 7 year mark that the Xbox did, but there’s really little hope for that product.
Their latest endeavor which is seemingly flush with cash is their Windows Phone 7 product. Whilst the sales of the devices haven’t been that stellar they’ve still managed to take a small percentage of the smart phone market. Their partnership with Nokia sets the scene for them to become a potential juggernaut in this sector but they’ve got a long uphill battle ahead of them and the gamble isn’t a sure thing for either side. Microsoft now appears to be looking to strengthen their WP7 offering even further by shelling out a cool $8.5 billion dollars for everyone’s favorite communications app, Skype:
The purchase price includes the assumption of Skype’s debt.
The agreement has been approved by the boards of directors of both Microsoft and Skype.
Whilst the acquisition is not solely dedicated to the WP7 product line it’s still the one that has the most to gain from it. WP7 doesn’t currently support any form of video calling like Apple’s FaceTime or Google’s Video Chat does and Skype could provide a good chunk of the underlying infrastructure, saving Microsoft a lot of work. Skype’s vision of being available everywhere lines up quite well with Microsoft’s three screens idea and I’m sure they’ll be looking to leverage Skype’s vast network to push their cloud products further. Still one has to wonder if the $8.5 billion price tag they paid for Skype is worth it, considering its Microsoft’s biggest acquisition to date.
When I first heard of the news that Microsoft had bought Skype my first reaction was that this was a maneuver to deny Facebook the chance at getting it. There were rumors of Facebook testing the waters of an acquisition for a while but it seems that in the end the only serious bidders were Microsoft and Google. It then becomes clear that Microsoft simply did not want the Skype network in the hands of one of its largest competitors and Facebook was probably not that interested in the first place, especially if Microsoft (who owns 1.6% of Facebook) was going to pony up the cash for them anyway. Google might not have been completely serious about their offer anyway since they already have most of what Skype has to offer and might have just been making sure Microsoft spent more than it had to (hey they’ve done it before).
It will be interesting to see how Microsoft leverages this investment, especially with its current product lines that have direct synergies with Skype. They’ve certainly been doing all they can to make sure their mobile sector succeeds and if Gartner is to be believed then we’re less than 4 years away from them becoming the dominant platform. I’m not so sure about that idea but I do know that Microsoft does have the resources to throw at this problem until they become big in this sector, and the Skype acquisition is a testament to that fact.
I spent the vast majority of my life living out in the country where mobile phone reception was scarce even when you were on the top of the highest hill you could find. For many years I stayed with Telstra because they were the only ones that could provide me with a connection that wouldn’t drop out most of the time and, thanks to my employment at a retail establishment that peddled their wares, I was able to get a very decent plan that kept me going until about 2 years ago. After moving into the city I’ve always felt spoiled having mobile phone reception wherever I go and I’m still mildly surprised when I get coverage indoors since the corrugated iron roof we had would kill any signal. I know I’m not the only one who’s had these kinds of issues but since I was at home I had many other ways to contact people, it was more the convience factor for those few who didn’t have IM or email.
The problem hasn’t gone away for my rural comrades who still languish with poor cell phone reception. Since the population is spread out so sparsely it’s not worth any mobile provider’s time and money to try and improve the signal out there as their potential customer base is quite small. It’s the same reason that they haven’t bothered with upgrading many rural exchanges with the DSLAM architecture required to give the same people broadband although there are other companies providing directional wireless broadband solutions to cover these guys off (that’s not the same as 3G broadband, just in case you were thinking that). The solution that companies overseas seem to be peddling to those who don’t get the mobile reception that they want seems to lie with the introduction of Femtocells, but I can’t really see how that fixes anything, nor why anyone would actually pay for the privilege.
A femtocell is basically a small version of those giant cell towers you see every so often. They work off the idea that they can route the voice and data traffic over a broadband connection, usually provided by the person who has purchased the femtocell. From a technical point of view it’s actually quite a simple and elegant solution as it makes use of existing infrastructure to provide a service that some people potentially lack. When deployed into the real world however there’s some issues that I just can’t see a simple solution for, especially when you consider those in a situation similar to mine all those years ago.
Firstly there’s the dependency on a broadband connection. Now whilst I’m not terribly familiar with the broadband situation in the USA here in Australia if you’re lucky enough to be able to get any kind of broadband the chances are you’re within a certain short distance from a telephone exchange which typically has its own cell tower. If you’re unable to get cell phone reception but you have connected broadband you’re either inside a building (which usually only kills 3G) or in some kind of freakish blackspot. Either way you’re still connected to the outside world via the Internet and possibly a landline or VOIP phone which could be your mobile phone if it’s capable of running Skype or similar. Additionally for those of us who lived with little to no mobile reception and lack proper broadband a femtocell is useless, since it simply can’t operate in those conditions.
There’s also the fact that, should Australian mobile carriers follow the USA’s lead, femtocells will have to be purchased by the end user. Now it’s always nice to have full bars on your phone but realistically if you’re at home there’s not really a need for it. The data aspect is fully covered by having wifi in the house which even the cheapest of ADSL routers come with these days. I can understand the voice aspect somewhat although if you have broadband in Australia you either have a landline which you can divert your mobile to when you’re out of range of a tower or you have naked DSL and VOIP, which could be used in much the same way. Additionally if you’ve got a smartphone there’s the possibility of using something like Skype which would still be contactable via the Internet should you lose signal at home. Really the mobile carriers should provide the customer with an outdoor picocell instead as coverage blackspots like that tend not to be isolated to a single household.
I guess I’m approaching this problem from the view of someone technically inclined as I can see the attraction for someone who’s stuck in a blackspot and doesn’t want to mess around with diverts and VOIP on their phone. Still the limited application of such devices really makes me think it should be a cost beared by the carrier as realistically it’s their infrastructure that the customer is paying for as even if it was free there’s still the broadband connection, bandwidth and power required for these devices. The problem would be rendered completely moot if a service like Google Voice came to Australia but for now it seems we’re still stuck with less than ideal solutions to poor signal issues in residential areas.