Cisco on Microsoft/Skype: Sour grapes?

Appeal of EC approval may indicate non-buyer's remorse

Does Cisco have non-buyer's remorse over the Microsoft/Skype union?

Cisco this week appealed the European Commission's approval of Microsoft's $8.5 billion takeover of Skype, citing the possibility that Microsoft may take Skype in a proprietary direction and impede interoperability with other vendor's video offerings. Cisco and Microsoft are fierce competitors in unified communications and collaboration, which includes video conferencing and chat capabilities like those provided by Skype.

POWER PLAY: Cisco aims to blunt the power of Microsoft-Skype merger

Does Cisco have non-buyer's remorse over the Microsoft/Skype union?

Cisco this week appealed the European Commission's approval of Microsoft's $8.5 billion takeover of Skype, citing the possibility that Microsoft may take Skype in a proprietary direction and impede interoperability with other vendor's video offerings. Cisco and Microsoft are fierce competitors in unified communications and collaboration, which includes video conferencing and chat capabilities like those provided by Skype.

POWER PLAY: Cisco aims to blunt the power of Microsoft-Skype merger

But Cisco also apparently passed up the opportunity to acquire Skype 18 months ago just before the company was looking to go public in a $5 billion IPO. At that time, Cisco was rumored to be considering buying Skype.

Now, after bypassing that opportunity, Cisco is looking to block Microsoft's closure of the Skype deal. If Cisco didn't view Skype as a needed asset, why impede Microsoft's purchase of the company?

It's just business - nothing personal.

"I think this appeal's about business," says analyst Henry Dewing of Forrester Research. "They compete in the Unified Communications space. By tying (Microsoft) up, having to figure out one more thing they have to so with the EU, that prevents them from moving forward for a while."

Cisco may also be looking for Microsoft to give up a Skype jewel before being able to close the deal, says Rich Costello, senior research analyst for Unified Communications at IDC.

"Now that Microsoft's plans for Skype are clear - tie Skype's users to the MS Lync platform - Cisco's objection centers on the fact that this integration will deny Skype users from interoperating with other vendor platforms, especially in regards to video conferencing, as both Skype and Microsoft support proprietary audio and video codecs," Costello says. "Cisco likely thought that there would be some conditions set forth for such interoperability prior to the MS/Skype deal's approval by the EC, after all Cisco had to meet a similar EU condition (open up its TelePresence Interoperability Protocol) prior to getting the EU's approval on its Tandberg acquisition."

Cisco had a devil of a time closing the Tandberg acquisition, which made Cisco the No. 1 videoconferencing vendor in the industry. It faced shareholder dissent on the value of the deal; and then, as Costello notes, had to make its TelePresence Interoperability Protocol available industrywide as a concession for closing on the Tandberg deal.

Cisco is apparently looking for Microsoft to make the same or similar concessions.

"The open argument is not without merit," Dewing says. "When Cisco bought Tandberg, somebody else lodged the same appeal with the EU.

"If Microsoft and Skype release non-industry standard solutions and people have to put in gateways, it puts the onus on the consumer to make it work," he says. "That has not worked well. Adhering to a standard makes it all work more seamlessly. Video is the next phone call; that's what Cisco talks about. Implementing multiple different standards will not advance that vision."