Microsoft’s Online Head Qi Lu: Skype Deal Is “Key Addition” of Marquee Consumer Brand

Microsoft’s biggest acquisition to date was on display this week, in Boston. I’m not talking about Skype. I’m talking about Qi Lu.

Lu, the president of Microsoft’s online services division, was in town on Wednesday to meet with employees at the firm’s New England Research and Development Center (NERD) in Cambridge, MA, and, in addition to private meetings with local companies and universities, to give a public talk that was co-hosted by Xconomy.

For those who don’t know, Lu was brought in at the end of 2008 by CEO Steve Ballmer to spearhead Microsoft’s fast-growing online efforts—including Bing, MSN, and mobile advertising. Before that, Lu was a senior exec at Yahoo for a decade, where he ran engineering for the search and advertising group. He had previously worked at IBM’s Almaden Research Center and Carnegie Mellon University.

So Lu is basically The One, charged with bringing the world’s biggest software company to a more competitive position in the digital, online, and social era (no pressure). And he was quite a steal—especially compared to the $45 billion that Microsoft offered to pay for all of Yahoo in early 2008.

This week, when he was in Cambridge, Xconomy sat down with Lu for an exclusive interview. Between that and his talk at the NERD center (see photo below), we learned a great deal about Microsoft’s (NASDAQ: MSFT) evolving strategy in search and the Web—and where the company sees itself playing across the various fields of consumer online services. We’ll have a separate story on that soon.

But first, we had to get Lu’s take on the big news of the week, and what everyone was buzzing about—Microsoft’s $8.5 billion acquisition of Skype, the Luxembourg-based Internet phone and video firm (which has a big Silicon Valley presence). Skype will become a separate division within Microsoft; it won’t be integrated into Lu’s online services division. Partly because it isn’t in his direct purview, Lu didn’t go into much detail. But from the high-level comments he made during our interview, and at his public talk, it sounds like there are plans to use Skype’s technologies across a wide range of Microsoft businesses.

“This acquisition is very strategic,” Lu told us. “Certainly we are very confident that going forward, the various parts of the company will be able to work with the Skype management teams to unlock the value.”

Indeed, it sounds like the deal will be important for boosting Microsoft’s offerings in communications and collaborative software. “Skype is a very valuable consumer online services asset,” Lu says. “It’s one of the marquee brands, and its user base is going through rather sustained growth. Particularly in scenarios that we really think are critical for the long-term future, which is connecting human communications with a lot more engaging, richer forms, [such as] video. These particular assets will be a key addition to the overall Microsoft online presence, collectively.”

Lu emphasized “the strong synergies that Skype will have in other Microsoft key assets.” As examples, he pointed to “powerful scenarios” that could be enabled by “having the ability to combine Skype with Xbox Kinect, Skype with Windows Phone, and even synergies on the enterprise side—Skype with Lync [instant messaging].”

Critics of the deal say that Microsoft overpaid for Skype by several billion—and that the Redmond, WA, firm faces big challenges in integrating Skype’s technology and business into its corporate machine. Lu declined to comment on these criticisms. He also wouldn’t comment on what, if any, lessons Microsoft has learned from the integration of Seattle-based digital advertising firm aQuantive, which previously had been Microsoft’s biggest acquisition, at over $6 billion, in 2007. (When Xconomy contacted several aQuantive alums earlier this week seeking thoughts on how the Skype acquisition might relate to their experience joining Microsoft, we got no takers either.)

So this deal is clearly a case of wait and see. My take is that, if nothing else, Microsoft kept Skype out of the hands of its chief online competitor, Google. And it seems clear that Skype, plus Microsoft’s partnership with Facebook, will provide a much bigger social platform than just Bing, MSN, Windows, and Xbox, and will be able to reach a lot more consumers—and bring them into the Microsoft fold.

Gregory T. Huang is Xconomy's Editor in chief. E-mail him at gthuang [at] xconomy.com. Follow @gthuang

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