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Does Microsoft's Skype Buy Mean It Finally Understands What People Want?

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Does Microsoft’s plan to buy Skype, a company that provides voice and video chatting services over the Internet, mean the software giant has finally figured out what consumers want?

Once the purchase is complete, Microsoft intends to add Skype’s voice and video calling technology to existing devices, from smartphones to gaming systems to email, betting that these features will help Microsoft quickly regain lost ground in both boardrooms and bedrooms.

But is Skype all that stands between Microsoft and a killer, must-have gadget? Or is Microsoft in danger of once again missing the mark with a costly blunder that was conceived by executives and PR gurus without adequate consideration for the consumer?

While analysts predict that Skype’s video conferencing features will make Microsoft’s enterprise products a favorite among corporate IT departments, they say Skype-enhanced consumer gadgets are less likely to take off, suggesting Microsoft is still having trouble putting its finger on the pulse of its users.

“It may very well be the case that Skype is bringing powerful technology that can influence Microsoft’s success in the corporate space, but in the consumer space it’s hard to see this as an asset they can leverage to warrant the investment they’ve made,” said Forrester analyst Charles Golvin, who dismissed the idea that Skype would be a gamechanger for Microsoft.

Microsoft desperately needs an iPad -- a hit product that will sell millions, inspire fanatical devotees, and have people lining up before dawn -- and despite sinking billions into its search engine, Bing, and smartphone software, Windows Phone 7, it has yet to woo consumers away from Apple and Google in meaningful numbers (though its success with gamer favorite Kinect suggests potential).

Microsoft has had a mixed record when it comes to anticipating what people want. Its Kin smartphone was pulled from shelves less than two months after it launched. Its Zune MP3 player has never been a credible rival to the iPod. And Microsoft has spent billions on its latest mobile phone software, Windows Phone 7, but, by the end of 2010, had sold only around 2 million phones running the operating system, a paltry figure next to the over 14 million phones Apple sold in the final quarter of 2010. Microsoft has kept silent on how many of those phones users have actually switched on.

Microsoft has confirmed that Microsoft’s Windows Phone software and Xbox gaming system will be among the consumer products to support Skype functionalities, and Skype’s presence on these two devices is likely to net vastly different results.

Experts say Microsoft will have a tough time convincing users to trade their iPhones and Androids for Skype-enabled Microsoft phones. Not only is Skype already available on nearly any smartphone as an app, but Apple and Google already offer their own voice and video calling services in the form of FaceTime and Google Voice, respectively.

It may also still be too soon for video chatting, which has yet to become an everyday activity.

“The thing about video chat is that it’s a feature everyone wants but no one uses,” said Dan Costa, an executive editor at PC Magazine. “Skype has been offering video chat services for a while but find most people use Skype to make voice calls for free.”

On the other hand, bringing Skype’s chatting capabilities to Microsoft’s Xbox gaming system could be a huge success: The voice and video features would allow gamers to communicate in ways they cannot on competing products, while also opening up entirely new applications for Microsoft Kinect, a controller-free, camera-equipped gaming sensor that lets users play games just by moving their body.

Microsoft’s Xbox LIVE, an online gaming service that allows players all over the world to connect, communicate and play with each other via the Internet, could get a significant upgrade thanks to Skype bringing its users into closer contact.

Combining Skype’s video chatting with the 10 million Kinect devices Microsoft has sold so far could potentially transform the device and with it, the television screens to which the gaming gadget connects. Via Kinect, Microsoft could come to command the living room, a battlefield tech heavyweights like Apple and Google have unsuccessfully attempted to conquer.

“There is a real opportunity for Microsoft to integrate Skype with Kinect,” said Costa. “Eventually, it could maybe even bring teleconferencing into the living room. Microsoft Kinect…could have a great telepresence platform: Instead of using Xbox to play games, mom and dad could be using it to place calls and check in on relatives.”

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