Microsoft to Acquire Skype for $8.5B; Who Needs an IPO?

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News Posted: Tue, May 10 2011 12:44 PM
Following reports circulating since last week that both Facebook and Microsoft were looking into buying the popular VOIP service Skype, Microsoft has apparently emerged the winner, although it remains to be seen if the Redmond giant really won. Skype is yet to be profitable, and lost nearly $7 million last year alone.

At $8.5 billion, this would be Microsoft’s biggest acquisition to date, easily eclipsing its over $6 billion purchase of aQuantive, dating back to May 2007. It is also Microsoft's first sizeable acquisition since 2008, when in August it acquired Greenfield Online for $486 million.

In its statement announcing the deal, Microsoft said that Skype will be integrated into Microsoft devices and systems such as Xbox and Kinect, Xbox Live, the Windows Phone, Lync and Outlook. The Kinect tie-in could be key: all those cameras attached to Xbox 360s could relatively easily be used to do video chat across Skype, with the images displayed on a TV.

It also slaps Apple's FaceTime in the ... well, face. Windows Phone, still not supported with a Skype client, will suddenly be put at the forefront of development, and will certainly be integrated into Microsoft's smartphone platform (this is also a wake-up call to Google's recent integration of voice chat into Google Talk, as well).

[The deal will also mean that, most likely, new features will come to the (still to be born) Windows Phone mobile version, first. Integration with the platform will also mean smoother operation of the app, assuming it's done correctly.]

Skype also has a huge customer base to play off of: 663 million, 170 million of which are regular users. 8.8 million of Skype's users are paying customers.  That might answer the question of why Microsoft has eschewed developing their own service.

In August of last year, Skype filed to go public. It was expecting to raise $1 billion, but soon after appointing former Cisco SVP Tony Bates as their new CEO, the company put the IPO on hold. Despite revenues totaling $860 million in 2010, the company lost $6.9 million overall, according to documents filed with the SEC. It did manage to see operating profits of $264 million. The company also carries $686 million in debt, which Microsoft will, of course, also acquire.

The acquisition is of course subject to regulatory approvals. Microsoft said it hopes to complete the deal during the remainder of 2011. Skype will operate as a new business division of Microsoft (Microsoft Skype), and Tony Bates will stay on to become the president of the division.
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So say bye bye to Windows Live Messenger... what do you think since Skype can do all that live Messenger can do and more.

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Inspector replied on Tue, May 10 2011 2:54 PM

I want to keep my messenger, but it would be cool to integrate skype in to messenger instead :).

Also integrate it in the windows... lol

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I think this will be a great acquisition for enterprise solutions. 

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3vi1 replied on Tue, May 10 2011 8:54 PM

>> I think this will be a great acquisition for enterprise solutions.

Microsoft already has a whole Unified Communications voip solution that integrates with Office Communicator for enterprises.  There's literally no technology in Skype that they didn't already have; they bought it for the user base.

The most likely case is that this is simply their way of killing off Skype support for Android/iOS/Linux, and trying to lock Skype users into their Windows platform. Watch as new features become "Windows-only" options, while MS maintains token but lackluster support for alternate OS's so that they don't incur the wrath of regulators.  This is why closed-source solutions that use proprietary undocumented protocols suck.

Watch for Google Talk to suddenly get a lot of new development, as people who had been complacent with the closed but free Skype see the writing on the wall.  Skype officially began its decline today.

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rapid1 replied on Tue, May 10 2011 11:40 PM

This is actually one of the smarter acquisition's other than NEC I have seen them do in a while. Yes there is a huge database, then you put it on there phone product as a device specific service. You also let everyone else use it on iPhone, Android, Symbian (which they pretty much now own as well), and if you don't have a market presence well they just bought one (specifically in the smart phone arena). The kicker is no one can really block them as Skype has a huge user base over all platforms as well as on every single carrier probably world wide at least I would imagine. Google talk may get a lot of development, but most people will not even know this, and as smart phones grow then so does M$ market wide. I guess I can see somewhat where those predictions come from that M$ phone will have such a huge market percentage by 2015, there pocket book as usual.

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HHGrrl replied on Wed, May 11 2011 11:17 PM

This seems like a lot of money, particularly since Microsoft already has similar technology. The claim that Microsoft bought Skype for the user base seems reasonable to me, but the price still seems high. Then again, what do I know about spending billions of dollars!?!?

I'll be watching to see what Microsoft does with Skype after the acquisition goes through. I just hope Skype gets better and continues developing rather than falling in a rut.

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