Microsoft buys Skype Global for $8.5 Billion

Microsoft announced  that it would buy Skype Global for $8.5 billion in cash, in its largest acquisition ever.


In Skype, Microsoft is buying the leader in Internet voice and video communications, with 107 million users per month connected for more than 100 minutes a month on average. That large and active user base represents a major asset, Steven A. Ballmer, Microsoft’s chief executive, said in an interview. “It’s an amazing customer imprint,” Mr. Ballmer said. “And Skype is a verb, as they say.”


Buying Skype, analysts say, gives Microsoft the upper hand in the fast-growing market for Internet communications, both for consumers and businesses.

“Google is way behind Skype, and getting ahead of Google in this market was certainly an incentive for Microsoft,” said Leif-Olf Wallin, an analyst for Gartner in Sweden.

Microsoft plans to expand Skype’s business and inject its voice-and-video technology across the spectrum of Microsoft products, from consumer offerings like Xbox to its Office productivity software. “There are a lot of great opportunities to optimize Skype services in Microsoft products,” Mr. Ballmer said.

Despite its popularity, the service has struggled to maintain profitability. Since most of its services are free, Skype makes much of its income from a small group of users who pay for long distance calls to telephone numbers. In 2010, Skype recorded $859.8 million in revenue but reported a net loss of $7 million, according to a filing.

Marc Andreessen — the co-founder of the venture capital firm Andreessen Horowitz, an investor in Skype — is optimistic about the company’s prospects under Microsoft, given the behemoth’s extensive lineup of products and various market opportunities.

“Microsoft has extremely broad reach, they have a whole product portfolio that Skype can be attached to,” said Mr. Andreesen, whose firm bought a $50 million stake in Skype in 2009. “There’s all kinds of ways Skype can make money.”

But Microsoft’s deal-making history is mixed. The company has often been a smart acquirer of start-ups and smaller companies, analysts say, picking off technical teams that are then folded into products likes Windows, Office and Internet Explorer. But during Mr. Ballmer’s tenure as chief executive, beginning in 2000, the company has also made far larger, riskier bids, most of which have been viewed as unsuccessful.

“Microsoft and Skype share the vision of bringing software innovation and products to our customers,” said Tony Bates, the current head of Skype who will become the president of the newly created Microsoft Skype Division. “Together, we will be able to accelerate Skype’s plans to extend our global community and introduce new ways for everyone to communicate and collaborate.”

 Read more at the New York Times.


Bruce Hubbard
Auto Advisor Group