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Xbox Kinect could be Skype killer app

Video Chat capabilities of Microsoft's Xbox 360 Kinect might be a strong reason for its reported deal to buy Skype for more than $8 billion.
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Microsoft’s blockbuster agreement to acquire Skype is all but assured now, with multiple reports citing a purchase price of $8.5 billion, including assumption of debt. The deal is already raising lots of eyebrows, with New York Times columnist David Pogue’s readers turning it into a running joke on Twitter.

The skepticism is warranted. Microsoft has had a rough time with big acquisitions in the past, and Skype will be seen by many in the industry as tying its fortunes to an over-the-hill technology giant that has struggled in consumer markets.

But many of the people trying to wrap their heads around the deal are missing an important point — the more than 10 million Microsoft cameras connected to television screens in homes around the world.

That’s how many Xbox 360 Kinect sensors have been sold in six months. The devices already have video chat capabilities, but the feature has been relatively low profile. Just imagine what would happen if Microsoft brought the Skype brand — and its 145 million connected users — into the picture. That’s a powerful combination of brands with the potential to get a lot of attention and usage.

Suddenly this deal seems more interesting, doesn’t it?

Skype up to this point has made its move into the living room through Skype-enabled TVs and TV-compatible webcams. But a combination with Microsoft would give the Skype brand a major new inroad, while giving Kinect another killer app, rivaling Cisco and others in consumer video-conferencing.

As we’ve been noting since yesterday, other reasons for Microsoft and Skype to combine include the fact that the companies are largely complementary. Microsoft’s strength is in enterprise software and services, including its Lync communication and collaboration tools. Skype’s strength is in the consumer communications market, but it has been aspiring to establish a bigger presence in business communication. Skype integration with Microsoft’s Windows Live Messenger and Windows Phone also would be logical.

So the companies seem, on the surface, like a decent fit.

Whether or not all of this justifies the $8+ billion price tag isn’t clear. Google and Facebook were reportedly discussing $3 billion to $4 billion at one point in their talks with Skype, which suggests that Microsoft was willing to pay a premium to keep those competitors at bay.

As always, a lot will depend on how well the companies can integrate their technologies and execute their business strategy. (Combining the Skype login and Windows Live ID systems will be just one of the tests.) But looking at the bigger picture — including the prospect of Skype-enabled Kinect cameras — it starts to make more sense.

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