Friday, 13 May 2011

Microsoft Acquires Skype for $8.5Bn

The biggest acquisition in Microsoft's history: buying Skype Voice-Over-IP telecoms company for $8.5 billion.

Microsoft has trumped both Google and Facebook, which had been hovering over the purchase - although both these rivals have nascent voice and video telecoms already built into their own platforms. Rumours of technical asset-stripping or simply killing a rival service abounded. why begs the question, why Microsoft...?

That's a massive price for a company that hasn't yet made a profit and has $686 million in debts. Not that it's stopped buyouts before; set-up in 2003 by the Kaza founders, it was bought by eBay for $2.6 billion in 2005 and we thought that was an insane amount! eBay failed to grasp that it's buyers and sellers didn't want (or need) to talk to each other, which is why eBay is successful, until various people pointed this out and eBay sold eBay sold a 70% stake to a group of technology investors in 2009 for a further $4.5 billion.


Skype is a world-recognised brand with 663 million accounts, but less than 100 million paying subscribers, hence all that debt. Microsoft has effectively paid $850 per paying customer plus a mass of degenerate freeloaders complaining about the appalling interface of Skype 5 for Windows! So what will Redmond do with it?

Skype on the Xbox360 and Windows Phone is the likely bet. However, the major telecoms carriers are notoriously averse to VoIP which threatens their cash-cow, sorry, business model of call charges. It's unlikely they'll accept the integration of Skype into Windows Phone 7. Better perhaps to integrate Skype into Windows 7 itself, for netbooks and tablets. Again, how this will fit into 3G carrier's data plans is unknown. Microsoft may have to agree a revenue share with the telco's and/or jack up Skype fees whilst restricting the free service. Otherwise I don't see much chance of MS recouping it's investment.

And elsewhere? Skype runs on many operating systems already - iOS, Mac OS-X, Linux, Android, Windows. It's an almost universal VoIP solution, but those with an aversion to Microsoft, combined with Redmond's strategic changes to come, may well push it off some of those platforms.

There is an initial statement: "Microsoft will continue to invest in and support Skype clients on non-Microsoft platforms." We reserve judgement on the truth of that one. RC

Microsoft announcement:

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