Ronnie05's Blog

Microsoft buys Skype for $8.5 Billion

Posted in Industry updates by Manas Ganguly on May 10, 2011

This is just in: Microsoft agrees to buy Skype for $8.5 billion. This is the largest deal in Microsoft 36 year old history. This acquisition solidifies Microsoft multi platform strategy.

An interesting history update of Skype: Invented in Estonia, founded by Swedes, incorporated in Luxembourg, bought by eBay, sold to Silver Lake, bought by Microsoft.

The price tag of $8.5 billion (@35% Premium) reflects Microsoft’s determination to rival Facebook and others in social networking wars. Akype’s global reach will be attractive and carrier support (notably Verizon) has validated the service. Microsoft must clarify how Skype will fit with services such as Windows Live Messenger and Lync as well as Xbox, Kinect and other Windows Devices. (Did they miss the Kin devices in that list?). The Skype deal gives Microsoft a recognized brand name on the Internet at a time when it is struggling to get more traction in the consumer market.

Om Malik, in his blog mentions the “plusses” for Microsoft in the Skype deal.
1.Skype gives Microsoft a boost in the enterprise collaboration market, thanks to Skype’s voice, video and sharing capabilities, especially when competing with Cisco and Google.
2.It gives Microsoft a working relationship with carriers, many of them looking to partner with Skype as they start to transition to LTE-based networks.
3.It would give them a must-have application/service that can help with the adoption of the future versions of Windows Mobile operating system.
4.However, the biggest reason for Microsoft to buy Skype is Windows Phone 7 (Mobile OS) and Nokia. The software giant needs a competitive offering to Google Voice and Apple’s emerging communication platform, Facetime.

Beyond this, Microsoft also leverages the Skype experience and expertise across many other platforms:
5.Skype has a lot of relationships with SMBs and enterprises that will complement Microsoft’s wares. By the way, Microsoft’s Lync unified communications system looks like a strong product line.
6.With Skype, Microsoft will have a major say—and could be the trendsetter—in video conferencing standards.
7.Skype can support Xbox and Kinect, Windows Phone, Lync, Outlook and other properties.

Interestingly, this deal between Microsoft and Skype could be a win-all for Facebook in the long term. Facebook was never a serious contender to buy out Skype but with Microsoft’s backing (MS has stakes in FB), Facebook could use Skype’s peer-to-peer network to offer video and voice services to the users of Facebook Chat. If the company had to use conventional methods and offer voice and video service to its 600 million plus customers, the cost and overhead of operating the infrastructure would be prohibitive.

Skype on a go alone basis lacked steam to power its revenue. Sources believe that Skype’s revenues has stalled. The company had bet heavily on is video sharing service. The premium version of video calling and sharing was a way for Skype to increase its average revenue per user and move into the enterprise market. However, given Skype’s DNA is that of a consumer Internet company, the challenges are not a surprise. (A challenge to Apple’s Facetime video chat service)

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