Microsoft’s $8.5bn acquisition of Skype is its largest purchase, and it puts in to play its vision of a web based on social relationship, location, and application experiences.

Last night, Microsoft Online Services Division President Qi Lu presented the firm’s view of the Web’s future, which helps put the importance of the Skype purchase into perspective.

You and I may use Skype for free, but this week Microsoft agreed to pay a steep bill for the free global phone service.

The Skype deal is the largest corporate acquisition
in Microsoft’s 38 year history. Microsoft CEO Steve Ballmer says the
purchase will make his firm “be more ambitious, do more things”. One
thing is certain, it absolutely defines the firm’s current world view.

There were no signs of other serious bidders forcing Skype’s valuation
up. The valuation, nearly triple the $3 billion paid for the profitless
service it just 18 months ago is eye-watering. It reflects how key Skype is to Microsoft, here’s why.

Last night I was fortunate to be at an event with Microsoft Online Services Division President Qi Lu. He presented the equivalent of Microsoft’s Web3.0 vision,
and I was able to question him about the changing role of content and
data in the digital marketing ecosystem. Here are some thoughts on how
his view of the future seem to fit with this purchase.

Search and social have a big story ahead

While search on Web1.0 “the topical web” can provide information based
on popularity and authority, the “social web” 2.0 provides information
based on trusted relationships. Microsoft sees that Facebook has a
leading consolidated position on the web, its that its data defines the
terrain of these trusted relationships. Everyone you’ve messaged on
Facebook, chatted with, liked or friended creates a relationship trail.
The same is true of Skype. Its shows the small group of people with whom
you really interact, and how actively.

How Skype Helps: Microsoft highly values its partnership with
Facebook. This positions them to provide an IP voice layer to the
service, and to use all of Facebooks data to provide targeted
advertising to users across Facebook and beyond. While Google is
desperate to “crack” social, Microsoft is laser focused in partnering
with its leader, Facebook.

Advertising is an inherent part of the online experience

The partnership with Facebook will help Microsoft build advertising
supported search which leverages the trusted recommendations of your
network. It will evolve to become more location aware, and use geo-data,
demographics and search requests to return more relevant results to

Imagine you’re searching for a movie to see, and that your
results leverage your friends’ input, location, and what people in that
neighborhood prefer. As “information” becomes a commodity search
impressions will drop. Count on Skype to have build in video
advertising, which will buoy Bing/Microsofts rate of ad impressions.

Security firms want your voice

This is my own insight from knowing about embedded systems….Identity
management, especially on devices which may or may not have keyboards
is a pain. What if you had the choice just to “say hello” and use any
device or data you were authorized to use? 

Part of the data that IP
phone services get is the pattern of your voice. Microsoft is in the
identity and access control business. Having voice prints for Skype’s
145 million active users would be a great start for this.

Hand held games and mobile phones

XBox is increasingly a media convergence device. Microsoft will make
voice part of that experience. Connecting players in game by voice is
obvious. Imagine the possibilities for interactive game and
entertainment programming. This expands the canvas for games and
television.  Imagine Second Life with way better infrastructure, and run
for mid-market adopters.

Microsoft has also lost a lot of momentum in the mobile space. Their
tablets, music players, and handsets are getting eclipsed.  Turning
gaming devices in to smart phones is one path. Or, more obviously, they
could use mesh networking between devices and wifi provide smart phones
that don’t have a reoccurring carrier bill.

Is Skype really worth $8.5bn?

Perhaps not to you or me. Not to Google which this week had very big
news on its $20/month Chrome computer, and a new Android version called
Ice Cream Sandwich which will merge its phone and device OS. 

Google and
Facebook don’t have a problem with not being sufficiently ambitous or trying enough new things. They have time to grow voice services, or to partner, and they risk
having others lead. Skype is an accelerant for many of Microsoft’s most
important ambitions. Its the part of the future that Microsoft wants to

In Ballmer’s words, Microsoft needs to “be more ambitious, do more
things”. It needs to get beyond making operating systems for PC’s, which
mobile and tablet computing is eroding. If that’s what this purchase
delivers, then revenue or not, it may be the essential purchase
reflected in Skype’s price to Microsoft.