Ronnie05's Blog

Skype Acquisition a indicator of desperate tactics at Microsoft to stay good in consumer internet space

Posted in Industry updates by Manas Ganguly on May 13, 2011

As the dust settles, there are increasing questions on the $8.5 billion that Microsoft spent buying out Skype. This beats Google’s quote of $4 billion by Google. While Microsoft with its huge cash reserves and earnings will make good on its investment of $8.5bn in 50 days free capital flow, this doesn’t make sense at all as a financial investment. There’s no way Microsoft is going to generate enough revenue and profit from Skype to compensate. Last year Skype had $860 million in revenue, and a net loss of $7 million, according to its initial public offering filing.

https://ronnie05.files.wordpress.com/2011/05/skype-logo.png

Unless there are other factors for Microsoft to bid for Skype. The supporting reasons for the rather desperate bid for Skype are as follows:

1. Skype’s user base
Skype has a strong and loyal base of more than 170 million active users across multiple platforms. Microsoft will get instant access to Skype’s network, which represents a huge influx of customers and a big leap in Microsoft’s presence as a consumer Internet company.

2. Skype and the enterprise
Of course, it’s not all about consumers. Skype has been aggressively pursuing the enterprise market in recent years and has made some solid progress there. Microsoft likely sees this purchase as a win for both its consumer and business product lines, and we can expect to see Skype integration coming soon in all manner of Microsoft products and platforms. Already promised is Skype support for Xbox (and Xbox Live), Kinect, Office, Lync, Outlook, Hotmail, and Windows Phone.

3. Windows Phone integration
Along those lines, perhaps the most obvious outcome will be Skype’s integration into future versions of Windows Phone. This will allow Microsoft to compete squarely with Apple’s Facetime and Google Voice. Expect to see Skype on a Nokia Windows Phone in the near future.

4. International long distance
Interestingly, one of Skype’s biggest strengths was barely mentioned in the press conference announcing the deal: the massive amount of minutes Skype users represent on the public telephone network. Skype’s been in an all-out war with the entrenched telecom carriers since its inception — the carriers despise Skype and rightly see it as a major threat to their business model. According to Alec Saunders, a telecom vet and ex-Microsoft employee, with this purchase Microsoft instantly becomes the world’s largest carrier of international long distance minutes. How Microsoft will take advantage of this, and what impact it will have on their existing carrier relationships, is one of the open questions around this deal.

5. Blocking the competition
Let’s not forget another angle that surely motivated Microsoft to pursue Skype — keeping it away from the competition. It’s been common knowledge that Skype’s investors have been looking for a buyer for some time. Skype was on a rocky road to an IPO, and it sounds like the investors who bought Skype from eBay were concerned about the viability of that process and eager to get their returns sooner rather than later. When Google came to the table, you can bet the deal-makers in Redmond started some serious number crunching.

From a technical perspective, Microsoft has already developed much of the same functionality that Skype provides. Windows Live Messenger offers free instant messaging and voice and video chat, it already works with Lync and Office, and Microsoft had previously announced plans to integrate Messenger into Windows Phone.They have lost confidence. Microsoft no longer believes it controls or even can control the game. Worse still, they don’t have confidence that they even know the rules. So they’ve adopted a defensive posture and this Skype acquisition is more of a block than anything else.

Put it straight, Microsoft bought Skype to keep Google from buying Skype. And we havent spoken about Apple yet!

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