Why Microsoft Is Buying Skype for $8.5 Billion

207 thoughts on “Why Microsoft Is Buying Skype for $8.5 Billion”

  1. Ummm… Microsoft already has a far larger footprint in the enterprise collaboration arena than Google or Skype – and even Cisco for that matter. I think you have it backwards. Microsoft wants to make the vast consumer VoIP network that Skype has interoperable with its own formidable enterprise network.

  2. Really need to change that title to “Why Microsoft is wasting $8 billion”.

    Honestly, some times this game of “tech keep away” means that smaller companies end up in the hands of giants which pretty much squander their talent and make the company disappear. I’d really like to see how spending $500 million on Danger turned out for Microsoft.

    It’s MUCH more likely they’d rather kill Skype than to see Google or Facebook get their hands on it, and that’s a real shame. Facebook would likely integrate it into their website even more (but I’d really hate that as I hate Facebook now). Google would FINALLY integrate a VoIP solution with Google Voice so telcos can shove it up their collective rear-ends. I’d just like these type of acquisitions to actually benefit the consumers for a change instead of wondering how they’ll gracefully degrade services for anything but their own integrated products.

      1. Actually, hotmail is far larger than both gmail and yahoo. it’s the largest email service in the world.

        Ofcourse, I like GMail better – but that doesn’t really count 😀

      2. @George Manuval Hotmail friggen dwarfs Google! They are crap when you compare their footprints. Seriously you try to sound smart and throw a few facts and you couldn’t be more wrong. Oh wait you can be more wrong. You’re agreeing with @Jeff above you!

      3. Windows Live Hotmail is the world’s largest web-based email service with nearly 364 million users. Second and third are Yahoo! Mail (280 million) and Gmail (191 million). (wikipedia)

      4. Hotmail has got to be the most CRAPPY of the web based email services anywhere. Sometimes take email over an hour to arrive? Yeah, you queens keep touting how great hotmail is. I’ll stay with gmail…

    1. The concern isn’t how Danger worked out for Microsoft — it is how it worked out for Danger’s users — very, very badly.

      As a heavy Skype user I am horrified by this news.

    1. Where is Hotmail today? Last statistics I read showed that Hotmail/Live has more active users than Gmail or Yahoo. Hotmail/Live also allows for bigger file attachments and large file storage on the “Skydrive”.

      As AlanLindsay sated, MS already has a great solution for corporate messaging/sharing with Communicator/Lync. Skype gets them into the consumer space and they will probably bridge the two.

      1. Define great. Microsoft has messaging solution with a wide adoption rate across the enterprise, but as an every day user of OCS I see absolutely nothing great about it. It is a pretty crappy IM client, really.

    2. Exactly Geroge. “hotmail” was dominating free email market at the time when usa.net was also favorite. See, hotmail is no more in the scene.

      You can imagine, with Microsoft what’s gonna happen for Skype.

      1. Hotmail is the largest e-mail provider in the world at this point.

        I don’t know what you guys are smoking, but please pass some of it over as I could use a break from reality for a while.

      2. Hotmail is the top e-mail service in the world currently.

        I don’t know what you guys are smoking, but could you please pass some down as I need a nice break from reality 😉

      3. Yeah… Hotmail is the most dominate email service in the world. Also, Hotmail provides their users with a SkyDrive which lets them store 20GBs of documents and pictures.

        Check your facts.

      4. Hotmail to gmail is pc to Mac is IE to Firefox…Does a greater number of users indicate a better product? No. That said, Skype trumps FaceTime in both numbers and product. Interested to see what comes of this acquisition.

    1. Wow, for $8.5B, they could probably have hired elite crackers to tap into Steve Jobs’ cerebral cortex.

      All of which is saying this deal doesn’t look very good for the entities involved (see MSFT, NOK deal).

      1. Gizmo5 didn’t turn into Google Voice, although it did contribute to it. Google purchased GrandCentral and rebranded it. Interestingly, they actually reduced the scope, since GrandCentral supported Canada, while Google Voice is US-only. This is rather strange since there don’t seem to be any additional costs or complexity to serving Canada; indeed, Google Voice actually does support one single Canadian area code.

    1. > I’m sorry Google is not buying it, because almost everything microsoft buys falls into a black hole and nothing really happens, no growth nothing.

      fixed that for you, so it correlates with reality.

    2. Mostly Google does not buy, they create or greatly improve what they bought. When is the last time you can say that about Microsoft.

      I think Microsoft just rid themselves of some good cash they will need moving forward!

      Bye Skype, it was a nice run.

    3. Yeah, like Applied Semantics (AdSense), Youtube, Keyhole (Google Earth), or Android.

      Name a decent MS acquisition in the past decade (ie, since Ballmer has been running the show).

  3. LOL @ groupon for thinking that their site was worth more than 6 mill when google made an offer. There is no way that groupon is worth anything remotely close to skype!! GG skype, i hope microsoft does not ruin you!!!

  4. Microsoft gets more or less nothing for this. By paying cash they avoid lowering their EPS, but they don’t raise it. They get an internet service that is not profitable and not demonstrably growing much anymore revenue-wise. And under Microsoft, it’s likely to grow less.

    eBay actually looks stupider than ever. Had they just held on a couple years ago, they’d be making the billions, instead of breaking even. Well done eBay. Or should you just rename yourselves to PayPal and be done with it?

    Facebook could’ve integrated Skype anytime. I don’t see how a piece of Microsoft is going to be easier to integrate than an independent Skype would’ve been. Honestly, if I’m Google, I’m thinking “embrace and extend” is the only way I’m winning in social and I start offering Google Voice integration at this point. I’m not beating Facebook at being Facebook, maybe I can continue to make tens of billions while they make billions.

    Microsoft gets nothing from this but some bloviating headlines for a few days (weeks?). This will yield nothing interesting.

      1. Microsoft has Messenger and Link. Messenger needs a real VoIP service. Link has VoIP but it is enterprise only. I think the real key here is the access Skype gives Microsoft to a solid VoIP base that is already built up and available to the general public and business. They may do away with the Skype name and brand someday but they will certain use the underlying VoIP infrastructure/network to build their technologies and services on.

  5. As the writer has identified, most of the staff are hired guns. So, if MS is not buying it for the staff (who’d already have jumped ship post eBay) what is it buying it for? The IP? $8 billion would hire 64,000 senior software engineers for a year. Or more realistically, a team of 10,000 for five years. They’d knock out a version superior to Skype (which has detiorated badly in the last two years) within 18 months. More Microsoft madness.

    1. No, no. Do you know how may registered skype users there are worldwide??? 660+ Million – last counted in 2009. Do you know how much money and how many years it took to get to this number? 4 years! This is what Microsoft is buying. A HUGE userbase – larger than anything else by far. 8 million is a dime in the bucket, and will be worth every penny.

      1. Do the math. $8Bn divided by 8M paying skype users, that’s $1000 per paying user. If these paying users are anything like me, they make $10 last about 1 year (I use it mainly to call 800 numbers in the US for free). $10 / year -> 100 years to get your money back.

        Good investment? What do you think?

      2. 700 million counted in 2009. Its probably 1400 million users by now. Do the maths- that about 6 dollars per user. If they are anything like me, ($100 per year) it is easy to see that they will soon make their money back. Its a bargain!!

        More than that, this also represents:-
        * An opportunity to squeeze out other operating systems (dont even imagine they are going to care for the Linux client).
        * An opportunity to know who phones who, and when.
        * An application for the xBox 360, another reason to put people on kinect connected to the internet, with microsoft (and the US Govt) in complete control of the hypervisor and the installed software, so they can look and listen into your living room.

  6. I hope Microsofts lawyers are smarter than the ones from eBay that time and they buy all of Skype’s IP rights on their p2p technology.And this could make things difficult for others offering p2p communication services as Microsoft is well known to battle on legal grounds as well..

    1. Hi Roberto,

      Joltid transaction a hangman’s noose around Skype’s neck?

      On November 6, 2009 Skype ballyhooed:

      “eBay Inc. (NASDAQ: EBAY) today announced that the investor group led by Silver Lake, which had previously entered into a definitive agreement to acquire a majority stake in Skype from the company, has reached a settlement agreement with Joltid Limited and Joost N.V. that gives Skype ownership over all software previously licensed from Joltid and ends all litigation currently pending against the investor group and eBay at the closing of the acquisition.”

      However revealingly, on August 9, 2010 Skype filed a Form S-1 with the U.S. Securities and Exchange Commission (page 195) which described in more detail the above “settlement agreement” with Joltid (which in my personal opinion is now a hangman’s noose around Skype’s neck):

      The Joltid Transaction

      On November 1, 2009, prior to the completion of the Skype Acquisition, we entered into a transaction with Joltid Limited (“Joltid”) which comprised three components: we and eBay reached a settlement of outstanding litigation with Joltid, we acquired intellectual property rights to the “Global Index” technology from Joltid and Joltid made an $80 million equity investment in us. We collectively refer to these matters as the “Joltid Transaction.” The Joltid Transaction centered on Skype’s acquisition of intellectual property rights in the Global Index software technology that we had originally licensed from Joltid in connection with the founding of Skype. Global Index is software that, among other functionality, facilitates communication in a peer-to-peer network of Skype users. We describe the main terms of the Joltid Transaction below:

      Settlement and non-assertion. Skype and Joltid and all other related parties settled all outstanding litigation and claims between them, and each party agreed not to assert any claims against the other party and its customers and distributors under any patents with an application date prior to the fifth anniversary of the Skype Acquisition, which closed on November 19, 2009.

      Equity Consideration. Joltid received an approximate 10% share in the share capital of the Company (valued at the time at $224.0 million) and a cash payment of $85.0 million. In addition, Joltid received warrants to purchase an additional 98,680 Skype Global shares, equivalent to a 1% equity stake at such time, exercisable until the earlier of November 19, 2019 or the closing of a reorganization event, as defined in the warrant agreement. The warrant has since been transferred to SEP Investments Pty Limited, an entity unaffiliated with Joltid; for more information on the terms of the warrant, see “Capitalization-Warrants.”

      Joltid Investment.Joltid also made an investment in us by investing $80.0 million in cash for an additional approximate 3.4% of our ordinary shares.

      Acquisition of Intellectual Property Rights. We acquired from Joltid (a) ownership of Joltid’s intellectual property rights in the Global Index software provided to Skype, subject to the license-back to Joltid of certain rights described in the next bullet point, and (b) co-ownership with Joltid of patents covering database systems that are distributed across multiple computers for enhanced data storage and retrieval, which is a technology that we use in connection with the peer-to-peer architecture enabled by our software. We have the exclusive right to use and enforce these patents in the areas of (i) telephony and/or video communications between end users, and (ii) file transfer functionality, instant messaging and e-mail, when used as an ancillary service or application to telephony and/or video communications between end users, in each case, regardless of the form or method of communication or access thereto. We refer to these areas as the “Skype Exclusive Field.”

      License-back to Joltid. We granted to Joltid a non-exclusive, perpetual, royalty-free license to use, distribute, sublicense and otherwise exploit, solely outside the Skype Exclusive Field, the Global Index software that we acquired from Joltid. We retained our rights to use the Global Index software ourselves in any field of use, including outside of the Skype Exclusive Field. In addition, we remain free to license others to use the Global Index software on or in connection with (a) our platform, or publicly available products and services, or (b) the content, products or services of any third party that are enabled by or available through our platform and client or publicly available products and services. However, apart from these uses, we agreed not to license others to use the Global Index software outside of the Skype Exclusive Field.

      Other commitments. In addition, we made payments or commitments to pay or invest an additional $32.3 million to or in affiliated parties of Joltid and to reimburse $20.0 million to cover expenses incurred by Joltid. The aggregate settlement of $378.4 million resulted in a net charge of $343.8 million recorded in the Predecessor statement of operations for 2009 and reflects the estimated fair value of the equity relinquished in the settlement, less the estimated fair value of intellectual property received from Joltid.

      In connection with the Joltid Transaction, we also entered into a number of related agreements:

      Agreements with Rdio, Inc. We invested $6.0 million in Rdio, Inc a new social music service founded by Janus Friis with Niklas Zennstrom, Skype’s founders, who are indirect beneficial owners, among others, of Rdio, Inc., pursuant to a convertible note instrument. We have agreed that for a period extending until November 19, 2011, we will not provide, other than with Rdio, or engage others to provide, services for the broadcast of professionally-produced music that is accessible by computer, mobile device, television set-top box, or other device that is capable of accessing the Internet. These restrictions are subject to certain exceptions that allow us to engage in our communications business in the ordinary course. We are free to publish a generally available application programming interface enabling third parties to provide, embed or link our products, services, software clients, or platform through third party websites, software clients, product or services. We are also able to publish a generally available application programming interface enabling third parties to provide, embed, link or otherwise expose third party software, clients, products or services on our products, services, software clients, website or platform.

      Agreement with Baaima N.V. (formerly Joost N.V.) We entered into an agreement with Joltid and Joost N.V., an affiliate of Joltid, which is now called Baaima, N.V. Skype’s founders, Janus Friis and Niklas Zennstrom, are indirect beneficial owners, among others, of part of Baaima. We agreed that, until May 19, 2012, we would use commercially reasonable efforts to prominently promote a new video service under development by Baaima, on our website, in marketing e-mails and through in-client dynamic content, provided the video service was of sufficient quality. In return, we are entitled to receive 50% of the adjusted gross margin resulting from the revenue generated by Baaima from the video service on our platform. We have agreed that, until May 19, 2012, we will not provide, or engage others to provide, services for the broadcast of professionally-produced cable television, network television, feature films and similar content, in each case, that is accessible by computer, mobile device, television set-top box or other device that is capable of accessing the Internet. These restrictions are subject to certain exceptions to enable us to engage in our voice communications business in the ordinary course. In particular, we are free to publish a generally available application programming interface enabling third parties to provide, embed or link our products, services, software clients, or platform through third party websites, software clients, product or services. We are also free to publish a generally available application programming interface enabling third parties to provide, embed, link or otherwise expose third party software, clients, products or services on our products, services, software clients, website or platform.

      Euroskoon Patent License and Purchase Agreement. We entered into an agreement with Euroskoon, LLC pursuant to which Euroskoon granted us a non-exclusive, irrevocable license to a number of patents. These patents cover programming for peer-to-peer technology. Under the terms of the agreement, we may sublicense these patents to (a) Joltid, (b) end users and third parties in connection with the software based products and services that we and, to the extent they interface with our products and services, our licensees make commercially available and (c) our affiliates. In return, we agreed to make an initial payment of $2.5 million and an annual royalty payment of $1.5 million. Between September 1, 2010 and September 30, 2010, we have the option to purchase the licensed patents for $9.0 million. If we do not exercise this option, Euroskoon has the option between April 1, 2011 and April 30, 2011 to obligate us to purchase the licensed patents for $7.5 million. In connection with our agreement with Euroskoon, we entered into a sublicense agreement with Joltid whereby we granted to Joltid a non-exclusive, perpetual, royalty-free sublicense to the Euroskoon patents described above. Under the terms of the sublicense agreement, Joltid may sublicense these patents to (a) end users and (b) third parties to use, distribute, sublicense and otherwise exploit, in both cases only in connection with the software-based products and services that Joltid and, to the extent they interface with Joltid’s products and services, Joltid’s licensees make commercially available for use by or on behalf of Joltid.

      Investment in Atomico. We also agreed to invest $10.0 million in Atomico Ventures II, LLP (which we refer to as Atomico), an Internet, technology and telecommunication venture capital fund. Skype’s founder, Niklas Zennstrom, is a general partner of Atomico, and with Janus Friis, among the most substantial investors in Atomico.

      Sincerely,

      Brad Reese

    1. I agree Rick, that seeing this deal going forward can encourage the “long-standing free rebel skype users” to reconsider maintaining their loyalty to a service which is essentially free and the best in it’s class. Microsoft may actually transform Skype into another MSN Messenger, although I would most likely agree with Messenger being entirely replaced by Skype. Regarding the possible integration in Facebook, it’s a missing feature at the moment, but it is one which will see businesses on Facebook thrive in using it. Sorry, I meant: businesses will have to buy Microsoft OCS licenses to be able to talk through Facebook, and possibly end users will have to pay a subacription as well. In the end, it is all Software as a Service.

    1. It would have been much cheaper and easier for microsoft if they have internally pushed facebook to grab it(SKYPE) and would have made more justification and sense moreover their goal to keep it away from google would also be solved.

      1. think like this, for 8 billion they could have got a good 20% stake in facebook, facebook needs cash…they get cash to buy skype and microsoft get facebook that has skype and a profitable business, for 8 billion they get more than 600 million skype and 600 million facebook customers and a more dominant online presence that is kicking google off its only source of revenue, facebook now is more popular among advertisers than google….

        to me microsoft buying skype for 8 billion makes no sense and is probably the worse decision of the year and the next decade for the company

  7. Skype is brilliant for anyone who travels internationally and has a stable internet connection. As a paying customer of skype I really hope that microsoft don’t ruin this service like they do with so many other products. Keep it simple and efficient don’t try to mingle it with all their other bullsh*t software and I’ll be happy, I’m not a big fan of live and never will be.

    1. I am also a paying customer but I have been looking for a replacement as the skype client is getting worse and worse. The one on the iPhone is terrible, as is the one on the Mac. I can’t imagine either getting better under MS.

      So – this is the time, and the chance, for a serious Skype competitor to emerge. It can only be a matter of time. facebook could certainly do it, and they’d instantly have that massive user base to make it popular.

      There seem to be lots of VOIP companies out there, lots of companies with the tech (Google included), but up to now nobody has actually come out and made an easy to use client that runs everywhere. Now’s the time, folks.

      I was excited about FaceTime but honestly even though the iPhone 4 seems to be everywhere, the dual limitations of it only working on the iPhone 4, and only working on WiFi make it relatively useless for me. I use it with my wife when I am away, but that’s it. FaceTime is a niche product and will probably remain one. It’s a dud – a beautiful dud, but still a dud. A communications tool is only as useful as it’s wide-spread, Apple somehow missed that when they made it an exclusive feature of their products.

    1. Maybe now they will bring back Skype for Windows Mobile 6(.5) users. Skype said they didn’t want to develop it further for the crappy Windows Mobile 6 platform, perhaps Microsoft now will change their minds… Truly hope so, so my Omnia i900 is still performant today, event without all the apps and other gadgets. Only thing missing is Skype.

  8. Dudes, it’s the Social Graph that these companies are fighting over… 100million+ active users, a network of friends and business relationships, many users who already did financial transactions with the service.

    Add some more social network underpinnings, further push on mobile, use Skype credits for other payments, etc.

    Google could deerly use this to reach their annual goals…

    (sure, gMail/etc. has tons of users as well, and there is some implicit social graph in there as well. but it’s just implicit, users did not explicitly ‘invite’ and ‘accept’ each others as colleagues, which makes quite a difference. )

  9. The biggest winners in this will be Ebay which gets an unexpected windfall and the original founders i.e. Janus Friis and Niklas Zennstrom. I mean seriously how can you sell the same company twice and make billions both times. Ebay screwed up the initial deal allowing the founders to have , as Om say, Double Dip

    1. Except for that they did not make billions in either transaction. A few hundred million? Yes. Billions? No.
      In fact, neither of them is a billionaire.

  10. Why didn’t Microsoft, Google or Facebook buy Skype for less than USD$2 bn two years ago when eBay was doing the firesale? Microsoft just wasted USD$6.5 bn of shareholder value.

  11. INteresting, Microsoft actaull has a good video and phone service in MS Communicator, but this is aimed at businesses, and is tied up with MS Comms Server. They finally had a Mac client out with Office for Mac, so both those platforms had working clients, only Linux, and iOS etc was left out in the cold, but no reason why clients couldnt be developed.
    All they are getting with Skype is the peer to peer transmission method and all the IP that goes into it, but not much of it could be applied to office comms whih is actually fairly well sandards based, only the authentication scheme it used was proprietary. So unless they want to buy it to halt development of skype clients on other platforms, so MS can turn it into their own Facetime competitor?
    BTW, I really want a Facetime cleint for Windows, and have it allowe over 3G from my phone, then it would be AWESOME! At the momement, Facetime is crippled by these artificial limits. It works fine of 3G here in NZ, as my iPad teathered through my phone works perfectly. Why can’t I just do it from my Phone, Apple?? I end up using Skype instead, because then My wife can use here Windows PC, and I don’t have to mess with teathering the Pad.

  12. This is terrible news. I love Skype and use it a lot. With Microsoft as the owner I only expect quality and service to drop, and that Skype will be Windows only and refilling the SkypeOut can only be done from Internet Explorer. Bye bye to Linux, Android and Iphone support.

    I hope Google will offer a good alternative.

  13. > Apple’s emerging communication platform, Facetime.

    Emerging communication platform? Facetime?!?

    Sorry but, after that, I find it rather difficult to take anything else seriously and you’ve just ruined an otherwise interesting piece.

    RT.

    1. I like skype and have used it since I don’t know when. Most skype users are over in europe and beyond not in the usa. I am actually glad to see skype out from under the umbrella of ebay and paypal management. Hope to see that cotinue to go away because maybe just maybe you will be able to talk to someone on the damn phone about customer problems. I like the idea of skype moving on in the usa. I am very happy to see the future now

  14. I was trying to do the math of the eBay deal, but I don’t know how much they sunk during their four-year ownership. They paid $2.6bn in 2005, sold 70% of that in 2009 for $2b in cash and commitments, and then will get $2.4bn or so from this deal. They already wrote down and absorbed the loss from the sale. Ostensibly this puts them $1.8bn up less the debt they ate during operations.

  15. This deal reminds me of Nokia buying Navteq maps for 9 billion. They are still losing a lot of money from that deal each year and there’s no chance of ever getting back that money. When companies feel threatened and become desperate they make stupid deals like these and they overspend.

    Deals this large should almost never be made because they almost ways turn out to be a failure. You should know that, Om. Skype was already on a decline. I can only see Microsoft accelerating that decline.

  16. Microsoft already has a strong presence in Enterprise voice, video, and sharing with Lync. With the acquisition of skype, I think Microsoft can tie that directly into the consumer communication market. If anyone at MSFT has the ability to see beyond the end of their noses (which is debatable on the consumer end), they could really drive the communications package home.

    1. could be a really good net product. Take the conference and presence management capabilities of Lync and cross it with the peer-to-peer nature of Skype and I think you’ve got a winner. Now Microsoft just needs a solid call control piece and I think they have a full platform.

  17. from what i`ve seen the past 2 decades, M$ likes best and only monopoly.
    It is hardly customer-care company and almost everything they put hands on doesn’t seem to function as initially intended.. Not to mention the quality of their own products (aka swiss cheese) for which they require payment from you to be made (NB! actual cheese – much cheaper).
    for me goes like: goodbye skype, welcome gtalk and alternatives.

    KISS m/ – as long as profit is the engine – the soul will never be free.

  18. If this ia the case then I will be canceling my subscription with skype and looking elsewhere as I am totally against microsoft and their business plans. Hope this hurts you microCRAP

  19. I know of a number of people living below the poverty line within the USA including my self who can not afford any other telecommunication other than Skype. $60 a year for my ph number and plan. Only phone I can afford. Hope this does not change now?? Very scary.

  20. Yes, as we always say, “There is a tornado coming!”. This is a scary situation. Microsoft is already a giant – no need to buy anything on this planet. Why not Microsoft create their own? I think it’ll be more affordable.

  21. It’ll be interesting to see how well MSFT is prepared to handle the public relations on this announcement. Given their past success rate with large acquisitions, there are likely to be some tough questions about integration, technology leverage/integration and culture (mis) match.

  22. “Google, with its Google Voice offering, doesn’t really need Skype.”

    What does Google Voice have to do with VOIP? Nothing, that’s what. Google would love to own Skype.

    1. No, I dont really see skype fitting with Google’s product suite. Not becasue it’s not a great product or that the user base wouldn’t be welcome but there would be real issues integrating it with the existing solutions which are already fairly advanced. I think that this will serve to push Google to put more resources at Google Voice and also make it easier to push governments internationally to allow for Google voice to be launched outside of US.

  23. There’s a story going around that Groupon was also interested in Skype. They wanted to turn it into a global online video customer service network and name it Grypon.

  24. Hello.. I’m a new investor and I would appreciate if someone could tell me WHY MSFT shares are going down when infact it should be the other way considering that microsoft is adding a new business venture into their kitty.

    Googling didn’t help, perhaps someone can help me to understand this.

  25. I think its a great strategy for Microsoft. The customer base alone is worth it; 600M users, spread over the world, primarily consumers, interworking alliances with Cisco and Avaya. Skype is probably the best implementation of Unified Communications out there. It could use some beefing up and this is where Microsoft can evolve the Skype product to be more robust with MS UC products. Skype also needs the capital to upgrade the Global Index from a proprietary implementation to SIP. This could make Microsoft the biggest Telecom Company in the world!!!

  26. Despite all the angry, conflicting comments on here, I don’t think Skype will really change. At most, they’ll retire MSN Messenger and turn their heads to Skype as the next thing to improve, since MSN Messenger doesn’t have video/voice capabilities (you can record voice in MSN, sure, but only in clips). Personally, I don’t care about video/voice. I like MSN’s Journal capabilities so I can doodle and send handwritten messages to friends.

    In other words, you guys are getting all heated up over nothing. I can virtually guarantee that nothing will happen–at least, not for a long time. ;P

  27. Thank you AlanLindsay.

    How come all these “tech experts” write about Microsoft like it’s some hybrid cross become a junior newcomer tryin to get in the game and an aging dinosaur failing and flailing at every attempt it makes?

    Do they ever actually go to real businesses? Business owners will be using either some custom HP, Cisqo, or Oracle software or (much much more likely) MS Office, Windows Server, Sharepoint Server, MS SQL Server, etc.
    MS literally owns enterprise collaboration. All the others, who of course do exceed Microsoft in certain technologies, are trying to curtail those technologies into coherent full spectrum enterprise collaboration offerings. Of course they still have to figure out all the “easy technologies” (does Openoffice still take 8 times the memory to offer a third the functionality as Office?) that MS has gotten so little credit for getting right over the years.

    By the way Microsoft is to my knowledge the only company in the world that can realistically offer a complete IT business solution by itself–Skype will only improve that.

  28. All points why Microsoft is buying Skype make sense, but the notion that Microsoft will get help in enterprise collaboration market via this deal is too far-fetched, even if one caveats it with SaaS…..

  29. That does seem like a lot to pay for skype, but congrats to all the skype folks. I wonder if Microsoft has consumer/telephony plans and if xbox will play into this in any form.

    Thanks for the post and all the interesting comments.

  30. If this is true, I’m really worried about the future. It seems that everything Microsoft get’s its dirty hands on turns to complete crap and takes over your life without asking for your approval. I’m on skype more than 8 hours a day (have been since it first came out) and am still reeling with what will happen when MS owns skype. Damn damn damn!

  31. Have always been an active consumer.
    Just deleted my 2 annual subs for Skype (unfortunately living 10 more months). Will keep on using for now but gradually move out.
    Problem is – Google is still not international with Google Voice! They should react QUICKLY.

  32. I guess businesses are set up primarily to make profits. Maybe Microsoft Corporation has made so much profit that it does not know what else to do with money. Except if there are some hidden benefits to their business concerns (Facebook, Yahoo messenger, etc). For an enterprise to couch out a whooping 8.5 million dollars for another product means they are either wasteful or have seen an untapped goldmine. The reason people keep selling their products to bigger companies gives one cause for concern. I look forward to Microsoft starting and finishing a technology of its own instead of its regular trade mark of buying over thriving businesses

  33. Microsoft getting the Justice Department on Google’s case seems to have been very timely with respect to this deal. In other words, I doubt that Google was in a position to counter-bid for Skype, given they’re under anti-trust investigation (Thanks to … Microsoft)

    Skype is hugely valuable to MS for enhancing the XBox online gaming experience while diffusing the cost thru Skype’s p2p based infrastructure.

  34. It depends on whether Microsoft will just integrate Skype with its own solutions or Microsoft will extend its own solutions through Skype.

    The second one will be harder but that is the only way Market will read this accuquisition as a gospel.

    For example, Microsoft can choose extend their unified communication concept from Enterprise environment into general public via the channel of Skype. People can use one ID to combine their phone, cell, fax, email and facebook. When a phone call flows to you and if the system finds you are busy in XBOX, the voice stream will flow to your console and you can handle the call without leaving your game. Does this sound amazing?

  35. I somehow have serious doubts, about what will happen to Skype as a prod. Will it also get as buggy as other MS products and will get every day patches and upgrades. Will MS make Skype a payed service? I think with current technical reputation of MS, Skype doesnt seem to be in nice hands or may be it needs a reboot.

  36. Most comments are mistaken 500 to 600 million user names not users, skype has about 120m users of which about 40m are active users, only 8m are paying userd, the 8m paying did not grow in the past 18 months, hence sudden sale at a fantastic price? I also believe beside window dressing the investor group did not achieve a lot. They did increase prices via call setup charges, build video (but could not make the paid model, call it freemium model work sufficiently). I would have liked a public Skype as it had a chance to transfor communication globally, now this goal has passed to the next champion of communication. Worst it will become a conduit for Windows Mobile. Plus skype would have been a great benchmark for TRU – the global mobile operator. Nowit is upon TRU to innovate where skype left it.

  37. I presume that in mainland China, Microsoft will push the mainland Chinese version of Skype, which has built in censorship and surveillance.. but the Skype interface couldn’t get any worse with a Microsoft makeover. Version four is a user interface disaster. I’m still using version 3.5, and every day they bug me to upgrade to version 5.

  38. So Microsoft thinks it got a great deal by spending $8.5 Billion? Well they could have had it for $6.5 Billion less – if indeed they thought this was such a strategic deal – just 2 years back when eBay dumped it. Guess they must have also fired their entire strategic acquisitions team for “missing” out on that opportunity!

  39. Facebook needs Skype badly. Among other things, it needs to 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.

    Enterprise and windows phone applications are good reasons however those did not seem to justify such a large purchase until the author(great article by the way) mentioned the above.
    Microsoft has been making a huge push into internet based services namely Bing for the same reason it started producing the xbox. Entering the game market despite it’s relative low profits was to serve as a hedge against erosion of Windows, at the time in the early 2000s many people thought that game consoles would evolve into home media centers and replace PC gaming thus hurting windows sales. Although both those occured consoles have acted as a supplement.
    The next predicted change in computing is Cloud, microsoft fears Google will replace the software OS with an internet based one. Which is why they’ve spent billions on Bing, formed a parternship with Facebook and are implenting cloud features in their Next OS. Right now Facebook serves as a tremendous asset it’s starting to supplant Google as the world’s premier location on the web and once they improve their ad mechanism; then google’s massive profits almost soley from ads will start to decline. Skype will allow microsoft to sell VOIP to business which is growing fast(even wal-mart is starting to use voip), allows them to sell facebook voice/chat features and provides a foundation for their mobile OS business.
    Microsoft is one of the very few Tech companies that has existed more than 20 years, the rapidly changing trends quickly make companies obsolete yet Micrsoft has managed to survive and continue growing as one of the most profitable companies in the world.

    However despite their acute prescience they tend to fumble the execution, so we’ll see how they do with Skype.

  40. I stopped using Skype a few years back. Better alternative voip, especially for cell phones. Skype peaked and was already on the wane, resulting in poor revenue.

    The problem with Microsoft is that they are to clumsy to notice that the era now is the Mobile device. Blackberry have they own VOIP, Apple do and many phones with Android will too.

    A toast to Skype for getting a bucket load of cash for a soon to be dinosaur.

  41. are u kidding me? Well I won’t be a subscriber. I’m still steaming mad over one of my hotmail accounts getting blocked. That evil corporation hired morons who cannot comprehend simple words- account blocked. How can I sign in? ACCOUNT IS BLOCKED moron and I can’t reset my password MORON- did you get that? Now why would i subscribe to skype? Oh yeah I can see it now “Account blocked please dial again” Just EVIL

  42. Interesting fact. But the problem is why Skype? Microsoft has already implemented good voice and video chat software and embedded free on Windows OS. Hopefully Skype wont be availabe for Linux in future…

  43. Most Skype users I’ve talked to are horrified at the news. Those of us who, in particular, are not that fond of Micosoft, all liked and valued an independent Skype. Now they’ve been absorbed by the Borg. Remember “embrace, extend, extinguish”? I hope it’s not gearing up for a comeback. They also bought out VirtualPC and killed it. Then VMWare, et al, made it irrelevant. I’m sickened at this.

  44. People are missing something strategic – Day after tomorrow is May 13.

    This signals the end of a decade of MSFT as a non-aggressive market player.

    Now MSFT will be back to buying market-share (including killing competitors but in a different way than old times) and innovation with cash hordes. They have acquired DOS, PowerPoint, Navision etc to create more holistic apps including Office suite, Windows platform, ERP/CRM Dynamics etc. And they made themselves and investors richer in the process.

    But they really are a small, mid and large-level enterprise software leader with minimal presence in most consumer software markets except for consumer Windows OS and Office suites in PC/laptop/netbook markets.

    I do not know if this acquisition will not add growth to their bottom-line like their Aquantive/Danger aquisitions but this is a big boost to their Colloboration market presence. It looks like OCS + Skype + Sharepoint will finally change the way enterprise business flows will occur. This would be a challenge to Cisco/Avaya/Google/IBM products in the same place.

    The talk of using Skype for serving video-advertising ads is another of their shots at the consumer market but then Skype is not YouTube with a brand built on consumer video publishing/consumption. This remains to be seen in the mobile space (ads on Windows Phone using Skype).

  45. It’s very mysterious to me what could be Microsoft’s reason to do this. I look’s to me like Skype’s name in VOIP world and number of current users, that Skype attracted and messenger could not, were the main thing. Skype is very popular among the common people. I now many people and families that bot computer and got internet connection just so that they could use Skype. Technology (protocol and system architecture) is not something Microsoft could handle by it’s own at least it’s not the reason to give 8.5 B $. If it’s technology maybe IPv6 poor development pushed MS towards to IPv4 NAT traversal solutions . But there were companies that had better performances in their product than Skype like HOLEST NAT traversal system which could open NAT and make direct p2p connections where Skype used relay servers. . So it very unclear to me why Microsoft did this .?.?.?…

  46. Hey Microsoft, this isn’t the 1980’s. You may have helped the world by being the first to help make computers available to even average non-techies, but as far as I can see your products are no longer innovative. Except the Xbox 360 + Kinect (it’s awesome!)

    Let’s see, your operating system is now the worst on the market, Hotmail is nothing but annoying (with things like spam and a lot of false positives). Although, I don’t know what will happen to Skype.

  47. Great, another product the Microsoft got their paws on and will more than likely drive into the ground because of their sweaty bald ape of a CEO has absolutely NO VISION as to where to take Skype..It was nice while it lasted…How Ballmer stays in control is beyond me….

  48. “If (facebook) 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”

    That’s a ridiculous statement. Building a peer to peer video and chat service is trivial. For connectivity to the legacy phone system, there are many VOIP companies out there that do just that. Skype’s main value is its popularity, and that’s the one thing that facebook really doesn’t need.

    Microsoft is throwing its money in the wind… I’ve been looking for a Skype-like service because the Skype client is getting worse with each version. I have no investment in my Skype contacts list; I imagine many of Skype’s customers are in the same situation.

    The big winners are the Skype shareholders.

  49. I just noticed that the prices were raised in skype, now I see why, the rates are more expensive now.. I use skype because I live far from my family so I call all the time to the other side of the world, now I will start searching something else, another option.

  50. dude microsoft already has windows live messenger which has a far bigger user base than skype while offering the same features plus a whole bunch of other features skype does not offer. you havent mentioned anything about messenger and how the acquisition of skype will affect that. what about that?

  51. As I understand it, Skype revenues for 2010 are $860m for a Loss of $7m.
    There are 800ish employees at Skype which is the majority of their Fixed cost.
    It tends to prove that variable cost are pretty high (In country call termination fees) and that Skype advertised prices are too low to make it a profitable business.

    The $5 billion valuation Microsoft put on Skype (from 3ish to 8.5) is very unlikely to be reflecting future expected profits. It seems Skype never made a profit and its likely to keep it that way if they dont raise their prices.

    It is obviously a brand name with some key technology IPR (I am assuming that) and lots of loyal users.

  52. do you think microsoft can use skype and its enterprise influence to convince mobile network companies to offer free calls to people using skype on wp7. Now that they are under no restriction I cannot see any reason why such thing can be ruled out?

    Also, can microsoft use skype integration into facebook to increase its share in facebook overall. they have a very minor stake and a very large presence in facebook, besides mark favours microsoft over google any day

  53. Well, goodbye to Skype support on anything but Windows and likely goodbye to the level of encryption Skype currently has for voice and instant messages. M$ will probably also introduce a slew of new electronic cavity searches into Skype (kinda like the Genuine Advantage thing for Windows only worse) to violate your privacy all in the name of “protecting the children” or some crap like that.

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