Microsoft Looks for More Coin From Skype Enterprise Customers

According to a recent report, Microsoft may charge Skype business users for video archiving and authentication services. ^[1] The plan is to keep the core video chat technology free for individual consumers but charge enterprise customers for the use of enhanced features like video archiving and authentication. Microsoft (NASDAQ:MSFT), one of the leading consumer and enterprise software companies, acquired Skype in May 2011 for ~$8.5 billion, raising questions on its monetization strategy for the software that is so popular because it’s free. We think this move should enhance revenues for Microsoft as it taps into the vast Skype user base, which includes a significant number of small, medium and large businesses. With Skype, Microsoft plans to compete with Apple (NASDAQ:AAPL) and Google (NASDAQ:GOOG) in the mobile space, and with Cisco (NASDAQ:CSCO) and LifeSize in the enterprise video conferencing space.

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Charles Songhurst, General Manager, Corporate Strategy, Microsoft stated in an investor event:

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You’re going to see the same dynamic [like enterprise email] in video where consumer video conversations have the same dynamic as consumer e-mail. It’s a product that is free, and it’s likely to stay free. In the enterprise you’ve got a very compelling opportunity around archiving and authentication. There’s a stat that’s approximately 29 percent of Fortune 500 employees use Skype without it being installed from their CIO. So, if you think about giving the CIO the ability to archive those conversations, to authenticate them, to have the same controls over that conversation that they do over their e-mail, that the employees have, you’d have a very compelling proposition.

Skype has more than 750 million users worldwide. We expect its user base to increase steadily throughout the forecast period. If Microsoft succeeds in monetizing the massive user base for Skype efficiently, it could be a significant addition to the company’s overall revenues. Microsoft plans to integrate Skype with its other offerings such as Office, Windows, Xbox and Windows Phone 7.

Skype accounts for around 1% of Microsoft’s $32 Trefis price estimate, which stands nearly 25% above the current market price.

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1. Microsoft could charge for Skype video archiving and authentication, ZDNet [↩]