Cisco: Skype Could Cost You Jobs And Healthcare, Our Experts Say

John Chambers CiscoCisco CEO John Chambers

Photo: AP

Cisco clearly fears that Skype, now in the hands of Microsoft, is going to be the end of its lucrative videoconferencing business.So it’s released a study from two world-class economics professors who warn of the dangers of nonstandard software like Skype.

Michael Katz, a professor at the University of California, Berkeley, and Bryan Keating, a Stanford-educated economist, argue that the government should step in and make Microsoft change Skype to be compatible with other video products.

If not, Cisco warns, Skype users could be left without job training and healthcare:

Microsoft’s Skype relies on proprietary standards, which hinders Skype’s more than 600 million users from calling non-Skype users, and prevents businesses from reaching them via systems that offer services such as healthcare and job training by remote video. 

The long and the short of the 43-page paper is that Microsoft’s Skype doesn’t support the same video and audio standards used in Cisco’s products.

Here’s the thing—the economists point out that Cisco could very well pursue the same strategy, though Cisco understandably didn’t quote this passage in its press release.

The professors write:

A firm like Microsoft (and to a lesser extent Cisco) is therefore exactly the type of firm that might prefer incompatibility with products made by other firms. … For example, to the extent that Skype uses protocols that do not interoperate with video-conferencing products based on industry standards, enterprise customers may find it necessary to use Microsoft video-conferencing products in order to access Skype’s 200 million active users.

In a summary of Katz and Keating’s arguments, Cisco says the economists believe that Microsoft should be forced to use the common standards Cisco prefers—by government intervention if necessary:

[G]overnment should address that conduct and impose appropriate remedies that would ensure adherence to agreed-upon industry standards.

“Cisco certainly has a point,” says Brian Riggs, research director at Current Analysis, a firm that analyses the telecom market. Skype, he adds, hasn’t “been … friendly to standards and interoperability.”

Microsoft could very well want to keep Skype from being compatible with Cisco’s products so it can sell more Skype subscriptions and more licenses to its enterprise communications software, Lync.

But Cisco is being over the top. Skype actually can work with Cisco’s TelePresence systems if companies buy a service from Microsoft called Skype Connect or a third-party connection service, like Blue Jeans Network.

Riggs says that Cisco isn’t making an “apples-to-apples” comparison, since Skype is a very different product from the ones Cisco offers.

The thing is, many enterprises would gladly ditch Cisco and use a far less expensive alternative like Skype.

This isn’t the first time Cisco has crossed swords with Skype.

In 2010, Skype poached Cisco executive Tony Bates to become its new CEO. Bates went on to sell the company to Microsoft in 2011, and runs it today as a unit within Microsoft.

Cisco tried to get Microsoft’s $8.5 billion acquisition of Skype blocked or altered by filing complaints with the European Commission after the acquisition was announced. It didn’t work. The EC approved the deal without condictions. Cisco then filed another complaint about Skype with the EC in February, even though the deal had already closed.

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