Posted on 05/10/2011 6:42:35 AM PDT by SeekAndFind
Microsoft announced on Tuesday that it would buy Skype Global for $8.5 billion in cash, in its largest acquisition ever.
The deal will give Microsoft a boost in voice and video communications, allowing the company to leverage Skype’s technology on platforms including Xbox 360, Kinect and Outlook. It may also help Microsoft’s fledging mobile telephone offering, which lags far behind Apple’s iOS and Google’s Android operating systems. In 2010, Skype users had 207 billion minutes of voice and video conversations.
“Skype is a phenomenal service that is loved by millions of people around the world,” Microsoft’s chief executive, Steven Ballmer, said in a statement. “Together we will create the future of real-time communications so people can easily stay connected to family, friends, clients and colleagues anywhere in the world.”
Despite its popularity, the service has struggled to maintain profitability. Since most of its services are free, Skype makes much of its income from a small group of users who pay for long distance calls to telephone numbers. In 2010, Skype recorded $859.8 million in revenue but reported a net loss of $7 million, according to a filing.
Microsoft’s deal-making history is mixed. The company has often been an smart acquirer of start-ups and smaller companies, analysts say, picking off technical teams that are then folded into products likes Windows, Office and Internet Explorer. But during Mr. Ballmer’s tenure as chief executive, beginning in 2000, the company has also made far larger, riskier bids, most of which have been viewed as unsuccessful.
In 2004, Microsoft entered into talks to buy the big business software company SAP, for about $50 billion, according to testimony that came out in a court case. In 2007, Microsoft acquired aQuantive, an online advertising company, for about $6 billion, a sizable premium, and some suggested it overpaid.
(Excerpt) Read more at dealbook.nytimes.com ...
I wonder if they overpaid for this?
Look at your Skype now. No ads. Look at your Skype in a few months after MS owns it. Probably have ads all over it like a google/youtube model.
... that Micro$oft will soon destroy. I hope there is another communications startup ready to challenge Micro$oft/Skype.
“Skype is very useful and convenient. Once Microsoft gets through raping it, it will be neither.”
Yep.
My thoughts when I first read the headline was “oh, damn....”
RE: “Skype is very useful and convenient. Once Microsoft gets through raping it, it will be neither.”
I have a distinct feeling that Microsoft is one of the most hated companies in FR.
Everytime a thread about Microsoft gets posted, I see sarcasm, ridicule, etc. galore. They can’t seem to do anything right...
Apple on the other hand ... looks like it’s very well loved...
I wonder how Microsft can survive in future with all these animosity so prevalent...
Just my observation.
RE: I wonder if they overpaid for this?
Business Insider Reports that Skype’s investors bought in at a $2.5 billion valuation two years ago and are selling for $7 billion ($8.5 including debt). That’s called winning.
Especially when the company’s IPO had been postponed and it didn’t look like a bidding process would have been straightforward: Facebook, reportedly interested, doesn’t have the cash, and Google (or Cisco) would have had the deal mired in antitrust forever.
Niklas Zennstrom and Janus Friis, who originally founded Skype, weren’t invited in the original buying syndicate. But thanks to some key intellectual property behind Skype that they own, they bullied their way in with a lawsuit, pushing out Index Ventures and its Partner Mike Volpi. Their stake is now worth $1.1 billion. Talk about double dipping.
Skype’s executive team is mostly made up of hired guns brought in from Cisco and other big companies by the new investors, only a couple years ago. They almost certainly won’t stick around for the Microsoft era and are probably already shopping for private islands and yachts.
Facebook tried to bid for Skype when it looked like Google was interested. Skype would be a great potential partner for Facebook, giving them added video and voice chatting capabilities, and a great asset for Google in its war with Facebook over the “social graph”. Instead of having to actually buy Skype to keep it off Google’s hands, its longtime partner and shareholder Microsoft did it on Facebook’s behalf.
A huge component of the Skype deal is mobile. Google has Voice, Apple has FaceTime. Now Microsoft has an amazing asset it can tie into Windows Phone 7. That’s good news for Nokia and other Windows Phone 7 partners like HTC and Samsung.
How the Skype deal turns out for Microsoft depends on what Microsoft does with it.
On the one hand, it’s an amazing asset with tons of potential. And using cash for acquisitions is better than letting it sit on the balance sheet (but might be worse than returning it to shareholders).
On the other hand, Microsoft is just bleeding money online, and Skype loses money. Is it really time to add more red ink?
A big source of growth for Skype was always going to be business conferencing. But Skype has consumer DNA, so Cisco was able to use its hold into the enterprise and sales power to keep them away from the gravy train. Now Skype has a home with a company that does nothing so well as sell software to companies. WebEx, its video conferencing suite, was one of Cisco’s biggest and most successful acquisitions, but it looks like it’s going to take a hit.
Google was probably never really interested in buying Skype. It doesn’t need the technology and barely needs the userbase. It has Android and Google Voice. But it was interested in bidding up the price and getting Microsoft to pay through the nose. And that it did perfectly.
But if Microsoft is smart about Skype, it’s an asset they can use to compete better with Google in many important areas, from enterprise software to mobile to social networking, and that will matter more than paying a few extra billion that would have been sitting on its balance sheet anyway.
Actually, Microsoft is the lesser of 2 evils for me.
I would absolutely NOT get an apple product - ever!
You mean like:
Internet Explorer (free)
.NET (free-and one heck of a develop enviroment)
Microsoft gives both of those away, but they serve the purpose of pushing people towards Microsoft operating systems.
My guess is they plan integrating Skype into their XBOX platform and leaving it free for other platforms (like phones and computers). The XBOX is a cash-cow for Microsoft. Skype would seem to be a great backbone for gamers to connect on. Especially when you consider an XBOX with Kinect.
Having Skype XBOX integration would be another (free) incentive to push people towards the XBOX platform (the same strategy they use with internet explorer and .NET).
I’ve always had better connections with Gtalk.
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