Facebook unveils Skype video chat

CEO Mark Zuckerberg talks up the power of his social network's infrastructure, but can the deal fend off a hot new video feature from Google? With video analysis.

By InvestorPlace Jul 6, 2011 10:18AM

By Jeff Reeves, editor of InvestorPlace.com


Facebook made a splash Wednesday with a major upgrade to its ubiquitous social-media platform: a video chat feature via a partnership with Skype.


The move comes along with upgrades to groups, chatting and buddy lists, adding an extra layer of interactivity to Facebook. That's saying something, considering the site already boasts 500 million active users who spend more than 700 billion minutes per month on its site.


So what is the motivation for the upgrade to chatting and Facebook-Skype synergy? To keep people connected, sure, and CEO Mark Zuckerberg acknowledged in his press conference Wednesday that Facebook chat was a bit clunky and needed some improvement. But more importantly, to keep users loyally plugged in as competitors look to get a slice of Facebook's massive social-media pie.


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The idea of a Skype partnership adds one-on-one video calling to allow friends to talk to each other. There is a simple two-click way to get the chat up and running, even for the first time, using Facebook's existing infrastructure to make video calling possible with an immediate Skype download in less than 30 seconds on a broadband connection.

Great news, right? Sure. Only last week, Google (GOOG) launched its Google+ social-networking platform with some video chops of its own, including group video chatting, something Facebook appears not to have a handle on just yet.

Google Hangout is a prominent feature of Google+ and has been heating up the Internet with reports of how addictive it is and easy to use for folks already logged in to Gmail. A great New York Times tech blog post hints that Hangout could be the company's "killer app."


Facebook clearly doesn't want to be left behind. Hence a hasty Skype announcement this morning on video calling, even if it's only for one-on-one chats.


Of course, let's not be fooled into thinking that the Skype thing was just thrown together on the fly. Back in May, Microsoft (MSFT) dialed in a $8.5 billion deal to buy Skype, in part because of rumors that both Google and Facebook were considering a buyout of the videoconferencing king themselves. Microsoft has its own plans for Skype, to be sure, but clearly knew that Skype was in demand in Silicon Valley. (Microsoft owns and publishes MSN Money.)


But the bottom line is that Google beat Facebook to the punch on video chat. And as boy wonder Zuckerberg races his company toward the inevitable initial public offering of Facebook stock in the next several months, that's not ideal. It's more important than ever to assure Wall Street that the Facebook IPO hype over the past year or so has been well warranted.

Even more troublesome for Facebook is that the IPO market appears not to be as remarkable as it seemed a few months ago, even for social-media companies. LinkedIn (LNKD) opened about 80% above its offer price on the first day of trading but has slid into the red since its initial stock offering May 20. And Renren (RENN), the so-called Facebook of China, is off about 40% since its May 5 IPO.


Facebook is clearly more dominant and is a much sexier company than either LinkedIn or Renren. But it's important to note that investors have become more skeptical lately. Facebook is going to have to prove itself with this Skype partnership if it wants to assure Wall Street that Google+ doesn't pose a threat.

Jeff Reevesis the editor of InvestorPlace.com. As of this writing, he did not own a position in any of the stocks named here. Follow him on Twitter via @JeffReevesIP and become a fan of InvestorPlace on Facebook.


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Jul 6, 2011 3:26PM

"But the bottom line is that Google beat Facebook to the punch on video chat."


You wrote that with a straight face?  Google+ may be the best thing since sliced bread, but how, exactly, do I use it?  Oh, that's right, I can't and neither can the majority of people.  Facebook + Skype is live today -- and not to just a few internet celebrities.

Jul 6, 2011 4:16PM
Smile Ya think Microsoft knew what they were doing when they paid so much for Skype?  Google beats Facebook, now that's a headline to save. This is going to be a real battle of capitalism (Facebook, Microsoft) vs socialism (Google, Android).  Socialism does really well until it runs out of other peoples money or ad revenue for selling inflated clicks.  Short Google if you got lots of guts or just watch while collect 2-4% dividends on Intel and Microsoft.
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