back
271 comments
This is Microsoft's ICQ moment. Overpaying for a company at the moment when its core competency is becoming a commodity. Does anyone have the slightest bit of loyalty to Skype? Of course not. They're going to use whichever video chat comes built into their SmartPhone, tablet, computer, etc. They're going to use FaceBook's eventual video chat service or something Google offers. No one is going to actively seek out Skype when so many alternatives exist and are deeply integrated into the products/services they already use. Certainly no one is going to buy a Microsoft product simply because it has Skype integration. Who cares if it's FaceTime, FaceBook Video Chat, Google Video Chat? It's all the same to the user.

With $7B they should have just given away about 15 million Windows Mobile phones in the form of an epic PR stunt. It's not a bad product -- they just need to make people realize it exists. If they want to flush money down the toilet they might as well engage users in the process right?

My mother, father, brothers and friends in 3 countries all have skype running most days. Skype have my credit card so I always have skype-to-phone available (I use it mostly to find my cell). It's been that way for me for about 7 years. That means I have skype running and I use it every day (but I only spend about $20 per year). It's not loyalty, but network effects and momentum count for something too.

Not sure that adds up to $7b (I dunno how to evaluate anything that big), but it is something. I'm sure this has a big chance of being useless, but it also has a chance of being helpful.

If in 2 years (assuming skype can keep it's usebase) every windows pc tablet & phone is connected to skype by default, it could be strenthened. If skype integrates in some significantly useful way with outlook/exchange (scheduling calls, confirming meetings, emailing chat sessions, synching contacts) it could help strengthen the corporate MS position (the real cash cow).

Like many decisions, it's not the decision itself that is most important, it's the subsequent actions, the execution. That said, a 1m phone giveaway would be epic. MS have money to burn and big fish to catch. Burn. Catch.

One reason is likely their experience with IE. They took so much flak destroying Netscape that it's just cheaper and less stress to buy the market leader and get on with it.

In terms of 'why', this is just the easiest way to integrate telephony with their own operating system in a way that leverages the network effect. Soon, any app which runs on Windows could just use the Skype Service. Mac/iPhone/Linux will only have bolt-on app integration with the market leader, or have to develop their own from scratch. And Microsoft will slap some very serious marketing behind this. Maybe Windows phones automatically use Skype when you call other Skype users and they're online, saving costs. Or MS could integrate it into business services, taking over internal phone networks. Maybe they have thought of a use I haven't in my 5 minutes of thinking :)

Not 100% sure, but I think the moneymaker and core competency for skype is not video chat.

I have a skype account, I pay for a personalized USA number that people can call with their phones and reach me around the world, I also pay for the ability to dial any number around the world. All of my work contacts also have skype accounts which we use to communicate. It would take quite a bit to get me to move off of Skype.

Agreed completely. Skype certainly has brand recognition and people know it’s “the” way to keep in touch across the ocean, but — and I don’t have studies to back this up — I bet it’s one of those brands people know but don’t feel very fond of. Skype is kind of annoying, for one, and is less reliable and more complicated than traditional telephone solutions (by virtual necessity, but that doesn’t matter). This should theoretically make consumers prone to try alternatives, as parent suggests.
I have loyalty to Skype. And this is infinitely better than Facebook owning Skype, imo
ICQ was mainly purchased/sought-after for their instant messaging patent: http://www.haaretz.com/print-edition/business/u-s-awards-icq...

Which is now owned by DST the same large investors in Facebook and Zynga.

"With $7B they should have just given away about 15 million Windows Mobile phones in the form of an epic PR stunt."

This instantly reminds me of the CueCat [1], which Wired sent out to half a million subscribers. I admit, a phone (even a WP7 one) could be a million times more useful than a CueCat ;-)

[1] http://en.wikipedia.org/wiki/Cuecat [2] http://www.joelonsoftware.com/articles/fog0000000037.html

There is a very strong network effect with Skype for PC to PC calls. But I doubt MS is going to get full value. They have had little success with freemium business models and I don't see why this would be different.
While you're right about loyalty, quality matters too. Skype is infinitely better than Google Voice when it comes to video calls (very little lag, if at all!) - plus, users can video conference for free, which is not an option with Google Voice (as of now). My point is, Skype is the best product in the market in its domain, no question.

I do agree than Microsoft is massively overpaying for Skype, however.

Goodbye "Skype®", hello "Microsoft Windows Live Connect for Windows Live®"
Microsoft owns the desktop - that's their cash cow. For large businesses they (basically) have to buy outlook / exchange. They throw powerpoint, visio, word, excel on top of that, plus the operating system, and they own it. From an operating system standpoint, there's not any real threat. From a productivity suites perspective, there's a bit more threat from cloud, but it's still comparatively small. Same can be said for email - gmail is a much larger threat but for corporate security, calendaring, integration, it's still not really there. This will probably be different in 5 years as the proprietary protocols and integrations move towards open standards. I find it ridiculous that I can't find another desktop email client that will natively work with exchange/MAPI, and Microsoft knows it. Skype is just extending it to the desktop, and it's a strong part of the desktop suite. I think they want to play in the enterprise space, because nobody wants to use Lync for anything other than IM (aforementioned turd comment here).
A few thoughts:

When we see the mac version stagnate, we won't be able to say MS has sabotaged it - skype did that before on their own.

The linux version has never been on parity with the others - will it be officially killed? Might MS actually put resources in to it to make it work as well as the others?

Overall, good on MS for doing this. I'm assuming this may bring on some more interesting dynamics to the google voice / skype party.

If this goes through, I wonder what would happen to Skype's Linux and Mac support. I'd hope MS would still support it, but I don't think they have any Linux software currently (I'm not positive about that, so please correct me if I'm wrong) and the Mac version of Office is always delayed compared to the Windows version. I hope Skype doesn't similarly languish.
Maybe I've missed something, but what has changed in the two years since eBay spun off Skype at a valuation of < $3B to make it worth more than $7 billion today?
There is always a persistent threat of Apple bringing Facetime to the PC desktop so that people on iPhones could call people with PC.

By purchasing Skype, MS could bring Skype to WP7 and offer it preloaded.

There used to be a time when MS could get traction simply by bundling their product everywhere. A competitor like Skype would be abandoned simply because they couldn't outspend MS. Imagine, $7b is a lot of money. You can give away $1b of free calls to get Live Messenger kick started, or run Lync for free. MS has lost that swagger that used to create their own reality.

As many users as Facebook, many of those users have entered their payment details, a great brand that is just as big as Facebook, and synonymous around the world with communication.

I just happen to be talking to a non-tech computer user on the weekend who told me that he and his entire family and friends overseas do not use Facebook because Skype does everything they need in terms of staying in touch and it has worked for them for years.

They should start over with the software and spin it into a web and mobile service. It is a great platform to take on Facebook with - a much simpler service for basic video or text chat, and add in some photo sharing, email, etc.

Google really missed out on an opportunity here - I bet that whatever they end up producing internally will not be merely as good or as popular as a new Skype run by Microsoft.

In terms of the price, it would almost be a worthwhile purchase with just the users and brand - the near-billion in revenue is just a bonus. Skype has near $1B in revenue, and most of the expenditure is related to writing down and amortizing assets as part of the acquisition (something that most PE groups do when they takeover a company - part of what makes some of these deals profitable and worthwhile). Number of Skype users and revenue is growing remarkably. If you look at the published financials[1], $97M was written off as cost of acquisition, another $250M was amortization of assets that were written down at acquisition. Their 'real' costs are $131M in marketing, $72M in development and $104M in administration - which brings gross profit closer to $500M+ for YE 2011. PE of 17-20 is a bargain, especially considering that Microsoft can significantly reduce expenditures by integrating the company into the web group.

I think this is a great deal, very different to ICQ (the immediate parallel that everybody is drawing) and much closer potential to the eBay PayPal deal. If done right, this could work out as well for Microsoft financially as PayPal did for eBay (remember PayPal wasn't doing so well financially at the time [2] - everybody called that deal crazy at the time as well) - add to that the potential of Microsoft taking on Facebook in the 'online communication for ordinary folk' sector - and it is a great,

[1] http://www.sec.gov/Archives/edgar/data/1498209/0001193125110...

[2] http://www.ygoodman.com/ppipo.html

TFA talks about how this "could play a role in Microsoft's effort to turnaround its fortunes in the mobile phone market".

Personally I feel this could be more about Microsoft strengthening its enterprise communications portfolio. Communicator/Lync is a giant turd, and this could be their play at Cisco's market, rather than Apple/Google's.

(Incidentally, the Skype chief exec Tony Bates is ex-Cisco)

It seems the number might actually be $8.5 billion:

http://kara.allthingsd.com/20110509/microsoft-will-announce-...

That's a pretty good return for the Horowitz + Original founders team who bought it for $2.75 Billion in November 2010..
Weren't we talking about Google or Facebook buying Skype a few days ago at $1-3 billion? What the heck happened? Insecurities?
Wasn't part of the problem for eBay that they did not actually own the core p2p technology that Skype used and instead licensed it from the former owners? Has Microsoft purchased that as well or are they just going to write their own? In which case quality will change...
Hopefully this forces Google to drop the "play nice" attitude with carriers & Skype and properly integrate video chat into Android across the board (yes, it's in 2.3.4, but it annoys me that Google left it this long and even then made it tied to a release that many phones will not get for ages if ever).
Huh? I understand that Microsoft is sitting on billions in cash, but couldn't they just pay a dividend?
MS would do a lot better to buy 200 promising startups (especially in the mobile space)
I hope all the IP is included in this deal.
I fail to see how this is a wise business decision. Skype has been losing money for a long time, and with cheap/free competition like Google video chat and FaceTime etc, why would MSFT invest in this?
I think that Microsoft buying Skype makes more sense than Google or Facebook buying Skype.

First, the way for Skype to make decent revenues is to go for the enterprise market, which brings them paying customers. It would be really hard to convert end users to paying customers, because of all the competition out there (Google Voice). So, they need to cater to enterprise customers. And Microsoft is huge on the enterprise, they would be able to integrate it into their suites, and make it a multi-billion dollar product in a few years.

I don't see any reason for Facebook buying Skype (different technology, different culture, price too high). Also I don't see any reason for Google to buy it other than to kill it and fold it into Google Voice (possible anti-trust issues?). So, even if the Microsoft-Skype deal isn't a match made in heaven, it still makes much more sense than Facebook-Skype, or Google-Skype.

They will use Skype like Apple uses Facetime. Get it natively into every Windows PC, Windows Smartphone and Tablet and let people (video)call each other easily. With the userbase MS has, this doesnt seem like a bad idea.

Imagine Scheduling Meetings in Outlook with automatic Video calls to everyone involved. Could be huge in the b2b market

Interesting to note that the market cap of Vonage is only 1.04B. They might have been able to buy up every single other VOIP company on the planet with the remaining $6 Billion.
Skype's (technical) HQ is in Talinn just across the water from Nokia, Microsoft's other new "acquisition"... useful for their mobile strategy perhaps?

But Skype's infrastructure is all Linux + Postgres (they are a huge Postgres user), so maybe they will be forced to rewrite it all on SQL server for the next few years.

And here's the press release, confirming the $8.5B pricetag.

http://www.microsoft.com/Presspass/press/2011/may11/05-10Cor...

Recently when I started to outsource work I noticed everyone had Skype and wanted to use Skype. Skype is the no1 general platform for reliable business communications today. I got amazed myself how many actually use Skype in this sector.

Skype is the new msn for voice chat and has been for quite a while. One of the reasons Skype is so attractive for businesses is the encryption methods it uses. I know the governments are annoyed by Skypes encryption due to they cannot listen and spy on those talking there.

Strange realization: I am relieved that Microsoft bought this, and not Facebook. Can't remember the last time I was relieved that Microsoft bought a company.
I guess the Linux client will stay beta forever... sigh
if MS absorbs the Skype technology into their own IM/chat/communications systems - and skype users are left out on a limb - where do they go?.

They stay with the MS product line happily perhaps, or they go to __________?

gChat/open/xmpp? Jump all the way to Apple FaceTime (seems a far jump). Or with forthcoming p2p flash video ease-of-dev/ease-of-use, does this all just become super common/easy to access?

The only way I can think of for them to really, really make this worth it beyond just owning the service is to integrate it in to Outlook like gmail video/voice chat. Although worker bees would hate it, it would be cool as a supervisor to be able to "call" your employee from a program you already have open all day anyways. Or even co-workers working on a project too lazy to get up or lawyers who need to talk about something but don't really have time to stop what they're doing. They could implement a feature enabling you to "add" friends who use outlook to your chat/buddy list. I don't think it would kill off gmail, but it would make some people much less likely to try it.

On a more personal note, I really hope they don't take away all those cool chat thingys (refuse to call them emoticons). That dancing guy and disappearing pizza get me every time.

I have a feeling that Microsoft was suckered on this one. Google and Facebook probably had no interest in skype, but bid it up so Microsoft would have to pay more. You'd think after all these years, and having this same thing happen time after time that they'd know that trick and see it coming. Guess not.
"Goldman Sachs Group Inc. and J.P.Morgan Chase & Co. advised Skype on the deal, according to people familiar with the matter. Microsoft is not using any financial advisers for the deal, the people added."

I see. That makes the 8.5 billion (price + debt) make more sense.

just remember that skype's product was already starting to suck before microsoft bought them...
What does Skype's patent portfolio look like? Could this be a way for Microsoft to shutdown other video chat services or at least extract a hefty license fee?
I guess this is good for the Canadian Pension Plan. :)
I hope Microsoft Skype does not require a hotmail account. This is good opportunity for Skype's competitors such as FaceTime to grow.
I have no real qualms with a Microsoft buy-out, but I was really hoping for Facebook to get on this one. However, this sort of leads me to believe FB is working on something they may consider "better." Let's just hope the MS crew does something intelligent with this move and we don't have another Delicious-style implosion.
Selling my Microsoft shares... Bought them a year ago thinking they could at least make one step in the right direction.
Microsoft finally gets back in the game? I'm as big a fan of Google as anyone, but it's nice to see Microsoft win one.
Why does Microsoft feel the need to buy other companies? Why do they not just build their own Skype version if they like it so much? How many people are going to lose their jobs now? Why do they employ all the brilliant young programmers if they are just going to buy up companies and not create new products?
As I commented in one of the other postings for this event: "There goes the neighborhood....".

Skype is/was one of the most significant products of the last decade or two. one I use and depend upon every day. I doubt that Microsoft will be able to avoid killing the goose that laid the golden egg.