'Skyped'---Microsoft-Skype Deal: An Analysis

Skeptics are panning Microsoft's decision to acquire Skype, arguing that the price of $8.5 billion (more than 30 times earnings) is too expensive. But with Skype, Microsoft vaults itself into the world of "free products" in a significant way. How Microsoft leverages those product users going forward — and whether it can retain and grow them — will be the true test of success for the acquisition.

The potential here is significant. Cloud services are considered to be the future of computing. For 170 million product users, Skype provides an on-ramp to Microsoft cloud offerings and other products. It gives to Microsoft a brand-aware user base keen to communicate, in the cloud, across a richly connected social network. It provides significant opportunities to up-sell, cross-sell, advertise, or bundle paid offerings. And by integrating Skype with its free cloud offerings — such as its free version of Office software — Microsoft multiplies the linkages and the revenue potential.

At the same time, Microsoft envisions deep integration with existing pay products, such as Office and its corporate communications offering, Microsoft Lync. Clearly, the company aspires to move into the stream of demand flow toward increasingly ubiquitous face-to-face communications across all devices.

But the acquisition also presents a significant conundrum: How will Microsoft integrate and leverage Skype without destroying what has been successful thus far — the free business model and the potential of the user base? Can the company simultaneously manage a world of free users supported by advertising and premium service offerings — and a world of paying customers looking for best-in-class communications applications?

The challenge is not an easy one, as Microsoft's own experience makes clear. While it has launched free versions of its Office software to the cloud, the dependencies of these offerings on the pay product remain strong and the pay product seems to get all of the support. Meanwhile, both cloud and pay Office are under heavy assault from free product threats such as Google Docs.

Fortunately, in Skype, Microsoft is buying a company that has figured out how to make money off of free products. That's why appending Skype onto the Microsoft organization structure as a separate, autonomous division makes a lot of sense. However, while this approach promotes the free products business model, it makes tight integration with other products more difficult

Some may argue that integrating Skype with Microsoft pay products has the potential to deliver greater incremental revenue than does supporting the free business model, so Microsoft should just let that model die. But the Skype unit is approaching $1 billion in revenue with free products already and much more may be on the way. With competitors using free products to rapidly stake claim to territory in the cloud, this may be Microsoft's best chance to leap forward with a serious presence in that space.

My Impression of Singapore

Last week, I was on a business trip to Singapore and though it was not my first visit, it did impress me. Each time I visit that country (This was my Forth Visit in total) it amazes me as is it possible to build a country, so systematically within such a short period of time.

Practically speaking, Singapore doesn’t have any natural resources, doesn’t have much history, doesn’t have population nor the land to support/feed, but the country transformed itself ever since it got freedom from Britain and then from Japan.

Lee Kuan Yew, former Prime Minster is a visionary leader who is the architect of modern Singapore. The whole country/city was built on modern thoughts and people are said to be the main resource for them. The way in which it got transformed in to a financial hub for Asia, in to most prominent hub of transportation between East and West, in to most attractive tourist destination, in to shopping destination; is really an amazing story. This whole country was built with sheer determination and with precise planning.

Most part of the time I was in International Business Park, which is a true example of vision. The whole IBP is divided in to different clusters, like Nordic Business Centers, German Center etc, where the focus is to attract business from these areas, provide basic facilities to setup and run the business and help them grow. This was truly an amazing way of helping to create more jobs locally plus improving the business. These kinds of innovative thinkers really made what Singapore is today.

The finance and service industries, two major revenue generators of current generation, have been carefully developed. I could see a whole different Singapore after gap of around 8 years, with lot of added attractions as tourist spot. This clearly tells me that there is a constant thought process on what all is happening.

Last time in Singapore, I spent close to one year working there and got a chance to interact more with local friends and I understood then that visionary leadership was the main reason behind the success of this country. And I can only agree to that.

After all this praise and positive feelings, I couldn’t resist but wanted to contribute to Singapore GDP, so decided to shop and bought few things there-by increasing the total revenue of Singapore as country 

It’s all about profitable growth!

There is a dissonance between the quarterly results of India’s top two software companies, TCS and Infosys Technologies, and the response it evoked in stock markets. While Infosys was faulted for not living up to the expectations of the analysts and suffered a greater fall, TCS produced very good numbers but still saw its stock decline.

But the stock market’s contrariness needs to be underlined to make the point that the outlook for Indian software is positive, Indian leaders are well poised to take advantage of it and the absence of any feel-good sentiment over the sector right now and not necessarily does not appear to be based on fundamentals. In particular, while analysts have pilloried the Infosys results, its numbers over the last few quarters have consistently met guidelines.

However, the recent trends in the results of the two major players tell two different stories. For several quarters now, TCS has been catching up on what has traditionally been the biggest feather in Infosys’ cap: high margins resulting from a pricing premium that none else could command.

TCS’ recent improved performance can be attributed to its boldness in accessing inorganic growth, charting out new geographies and being able to digest all this. On the other hand, Infosys has remained its usual conservative self and produced solidly commendable results. Both the companies are world beaters in being able to command 25 per cent net margins.

Being able to keep growing fast for well over a decade now indicates that they are not continuing to rely solely on their earlier cost advantage. They have been going up the value chain, acquiring domain knowledge (industry-specific skills) and increasingly assisting clients in reshaping their entire operations to gain newer efficiencies, which are imperative for survival in the financial crisis-induced downturn. What is important is that these firms have picked up the slack that they had developed in 2009-10 even as recovery in mature markets, where their main customers reside, has been uncertain.

Undoubtedly, the Indian leaders face a major challenge in maintaining their scorching pace of growth and high margins, and they are aware of it. Hence the generational changes that have taken place at the top. Thus, right now they seem to be measuring up to the challenges before them.