Microsoft's Skype acquisition: Warning Signs ahead

Microsoft and Skype announced that they have entered into a definitive agreement under which Microsoft will acquire Skype, the leading Internet communications company, for $8.5 billion in cash from the investor group led by Silver Lake. The agreement has been approved by the boards of directors of both Microsoft and Skype.



There are mixed opinions concerning the expected acquisition. 
I see the warning signs ahead. 


I do think that analyzing important factors such as the number of months Microsoft's profit's sum to 8.5 billion USDs or tax reduction due to acquisition of a Luxemburg based company are irrelevant or at best secondary.


Even if a company profits are high, the company could find better investment alternatives, e.g. spending more on R&D, buying other companies or investing in companies without acquiring them. The last option was chosen by Microsoft in order to invest in Facebook.

The significant factors are:

• What Strategy is used for increasing profits related to the acquired company assets?

• Could the Strategy realize the promise? 

• Is the company capable of Executing this strategy and provide large enough measured profits in reasonable time frame?

Warning Signs

Warning sign no. 1: Unsuccessful acquisition by eBay

Skype was acquired by eBay in September 2005. However, the acquisition provides no measurable Value, therefore sold by eBay to investment group led by Silver Lake in November 2009. 

Warning sign no. 2: despite of millions of users Skype does not generate high profits

The volume of Skype's activity is impressive: 170 million connected users and over 207 billion minutes of voice and video conversations in 2010. The revenues are a lot less impressive. Is it because of Skype's business model or is it because it is difficult to gain money from free VOIP telephone service?

Warning sign no. 3: Microsoft's image is an image of an old conservative company, which is a laggard in new technologies and paradigms 

Microsoft is not an agile company who can easily change its Strategy, Technologies and focus. 

It is a matter of: size (it is easier to small companies to adapt) and fear of losing revenues in current products (for years most of Microsoft's revenues derived from traditional Office products and Windows Operating Systems). 

Microsoft was late in entering to emerging technologies such as the Web (Microsoft adapted to the Web only in 1995) Web 2.0 , SOA and Cloud Computing.

Warning sign no. 4: The payment is 8.5 billion USDs in cash

If the strategy is a strategy of development and enhancement of an acquired product, then preserving leading employees is a key for success. A payment in cash does not guarantee that the key people will continue working for the company. Without the leading people a product value could be a lot less than its value when they are available for future development.        

Warning sign no. 5: No history of successful acquisitions

I maybe wrong but I am able to recall only one successful Microsoft acquisition: CRM product which evolved to Microsoft Dynamic CRM.

Acquisitions are not simple (see for example: Acquisition is not simple: SAP-Sybase acquisition agreement). Assimilating an acquired company is a long multi-dimensional process requiring alignment of Organizational Cultures, Technologies, Procedures, Applications, Organizational Chart, Rewards Scheme, Development Methods etc.  

Microsoft was more successful in investing in companies instead of acquiring them. Facebook and Apple (many years ago before it turned into a success story) are good examples. On the other hand, investing in Yahoo! was not a success.      

Warning sign no. 6: Microsoft opposing software usage without charge   

Microsoft was the leader of the anti Open Source camp. It also fought against illegal reproducing software. Both activities share a common rational: Enterprises and Home Users should pay for software and for software maintenance. 

Most of Skype software usage is free of charge. It is a different revenues model.

Will Microsoft charge for basic Skype services? If yes, I wonder if users who did not pay for years, will not abandon Skype for its competitors.

My Take

The warning signs cited above suggest that Skype acquisition for 8.5 billion USDs in cash is at least questionable.

Is Microsoft going to acquire Skype for its large installed base or for its products and technology? I am not able to answer this question after reading Microsoft's and Skype's announcement.

According to the announcement, Microsoft has a long-standing focus and investment in real-time communications across its various platforms, including Lync  , Outlook, Messenger, Hotmail and Xbox LIVE.

I can hardly spot significant benefits to Outlook and Xbox Live from Skype acquisition.

Skype may augment Instant Messaging of Microsoft's Messenger by its Voice and Video capabilities. 

Lync is Microsoft's new Unified Communication Server replacing Messenger. I do not know if it will be improved significantly based on Skype's technology or features, but I doubt if such improvements will justify a price tag of 8.5 billion USDs. 

Will Skype technology be the foundation for Windows Phone? Cannibalized to augment Windows Phone capabilities or most probably will be developed concurrently to Windows Phone? I do not know if Microsoft managers made their minds yet, but combined with potential improvements in Lync, I still doubt if the future results will justify a 8.5 billion USDs transaction.   

Case Management - The missing topic in STKI Summit 2011

STKI Summit 2011 was about the emerging new IT World. 
The emerging game changing trends are: 

• Mobility

Smart phones applications and Location Based business Services

• Social Commerce and the important role of Social Networks and other Social Computing software

• Cloud Computing which may change the CIO's role to Business related role instead of Computing Infrastructure focused role.

• High Data growth rate in general and non-structured data in particular

It should be noted that any of the new trends or technologies cited above is not game changing. The combination of all these trends together is game changing.


The growing IT-Business Gap was mentioned several times in conference presentation topics, e.g. Business Intelligence, SOA, Social Networks. 
The concept of Business Technology (BT) was also discussed in the Keynote presentation. This concept originali developed by George F. Colony from  Forrester Research after an open discussion. 
Forrester analysts and other IT experts including myself participated in that open discussion.

Peter Drucker's ideas were also mentioned in  DR. Jimmy Scwarzkopf's Keynote Presentation.


Peter Drucker originated the concept of Knowledge Worker.
Knowledge Workers are those who use actually Case Management tools as part of executing related Business tasks.



What is Case Management?
Case Management is for handlinga certiain type of Human Business Processes, which require Knowledge Workers activities.


The first topic which come to our mind in relation to Business Processes is BPM. BPM is one of of Case Management pillars. 
We can classify Business Processes on the dimension of human involvement.


Relatively small precentage of Business Processes are fully Automated Processes or SOA Processes. No Human activities are required in order to execute instances of Automated Processes.


The majority of Business Processes are more complex: Human activities are required in addition to automated systems execution. In order to handle Human Processes,   BPMN standrd based tools or BPEL for People, not yet standard, tools may be used.


Some of The Human Processes are even more complex and less structured. Execution of instances of these processes requires Ad-hoc decisions by Knowledge Workers.


Case Management is addressing execution of these Processes.
In order to implement Case Management, BPM tools are used in conjunction with Enterprise Content Management (ECM)  tools, Business Rules Engines (BREs), Business Intelligence (BI) tools, Social technologies, Event Processing tools and Service Oriented Architecture (SOA) tools. 


Because at least part of the Human activities in the Process are unstructured and complex, Knowledge Workers compose process instances using the tools arsenal cited above.


The Process instance composition is based upon assembling pre-defined tasks and upon collecting and anlyzing content and information.  


The Knowledge Workers responsible for Case Management are actually Business Users and not IT staff, so without any formal organizational change, Business people responsibilities were extended to include IT responsibilities. Therefore Case Management is related to Business-IT gap cited in the begining of this post.


As far as Business-IT Alignmnet issues are concerned, the implications of Case Management could be summarized in the following bullets:

•  Provides more Business users Process control related to Process Execution in additon to their control of Process Modeling and Process Optimization.

• Extends Agility by allowing Ad-hoc process changes by Business users. The change is performed quickly without  large managemental overhead.  

• IT still control the entire process. Business users control only the Ad-hoc part of the process

• Defines a new Business-IT model which reduces conflicts and may help CIOs to "return the sheep back" as described in STKI Summit 20111 logo titled: Manage Scattered.

Case Management characterisitcs
The following bulltes highlight Case Management processes characterstics:

• High variability between process instances

• High knowledge level is a must

• Collaborative

Social Networks and other Social technologies value is manifested due to the Collaboration requirement. 

• Long Processes

Process instance (or Case) elapse time could be days or even weeks. 

• Many people participate in process execution. The role of some of them could be changed during process execution.

•  Isolated Automated pockets

I read this nice term in  Singualrity's White Paper. It provides visual description of a Human Process with isolated automated parts.

• High Complexity

The reasons for high complexity level may vary. For example, correlation between Cases, dependence on external events while the Case is going on, participation of large number of departments in the enterprise or even outside the enterprise boundaries.


Case Management Vendors
Forrester Research use the initials DCM to describe Csae Management.

The initial D stands for Dynamic. Guess what CM stands for.

(if not guessed, see the title of this paragraph). 

Leading DCM vendors according to the Forrester Wave as of 31 January are: Pegasystems, IBM, EMC, Appian, Singualrity and Global360.


IBM and EMC are well known in Israel. They are major players in other markets. 
IBM's Case Management solutions are based on its BPM and BI products. IBM and EMC bring with them leading products and extensive experience in ECM platforms. 


The other DCM leading vendors are less known in the israeli market. They develop and market BPM products.
Appian's product could be used as a SaaS product, as well as in the Data Center. Singualrity is Microsft's partner, focusing on Microsoft's infrastructure  based enterprises.  


Why Case Management was missing from STKI Summit 2011 agenda?
I do not know, so everything written in this paragraph is only a guess.
The main reason could be the current status of BPM in Israel.
The majority of israeli enterprises did not implement yet BPM.
Even most of those who impelmenting BPM are still in the early stages of BPM adoption.


It is natural to begin BPM initiative by implementing Automated Processes.  
The probability of beginning BPM initiaitve by implementing Automated Processes , is even higher if a SOA initiative is performed in parallel to the BPM initiaitve. 


After implementing some Automatic Processes, an enterprise may discover a process, which is not fully automated.  So the next step is implementing Human Processes. In order to implement Human Processes, adaquete BPM tools should be selected and assimilated and a decision about usage of standards like BPMN or/and XPDL should be taken.


In this stage many enterprises discover that the BPM tool they used for Automatic Processes, is not good enough for addressing their Human Processes. 
If  selction of a new BPM product is required, in addition to  the product already used or for replacement of the product in use, this stage could take longer time than expected. 


The right  time for impelementing more complex and less structures Case Management based Processes is only after acquiring experience and knowledge in impelementing Automated and Human Processes, is the . 
In my opinion most of the Israeli enterprises did not yet reach that stage, so Case Management impelemntation is not an addressable issue for them.


The fact that many of the Case vendors are not known is an hen and egg question: Which of them preceeded the other?


Are they still are unknown in Israel because of no marketing campaigns due to lack of potential customers? or is the lack of marketing activity the reason of no enterprises experiencing Case Management due to no knowledge about Case Management and/or Case Management solutions?


I estimate that the first scenario is more reasonable: Only few if any, enterprises in Israel are mature enough for implementing Case Management. This could be the reason for ommiting this topic from a conference focusing on the Israeli market.


However, I asume that in two or three years, the circomstaces will be changed and the emerging and important topic of Case Management will be a reality in the Israeli market as well.