Microsoft Buys Skype, What Does It Mean For You?

Martin Brinkmann
May 10, 2011
Updated • May 11, 2011

Microsoft is buying Skype for $8.5 billion Dollars, that's the big news today. This deal brings up lots of questions. Did Microsoft overpay for Skype? The current owners have bought Skype one and a half year ago from eBay for $2.75 billion Dollars, which makes the $8.5 billion Dollar offer an increase of more than 300%.

It looks like a steep price for a company with more than 600 million users worldwide. Two factors seem to have convinced Microsoft. The first is Skype's momentum. The service gets 600k (as in thousand) new users every day at the moment which means that its user base will have increased by more than 30% in the next twelve months.

But it is not only the Skype user base that is growing. The company's revenue has grown to $860 million in 2010, with a 20% year over year growth. Skype did not turn profitable though in 2010, as the company generated a net loss of $7 million Dollars. That was on the other hand $410 million Dollars less than the net loss in 2009. It is very likely that Skype will see a profit at year's end.

Skype on its own could hit the $1 billion revenue mark in 2011. The product is highly popular on today's Internet, with more than 30 million consecutive users online at all times.

The second factor are synergies. What if Skype becomes an integral part of Windows, Xbox or Windows Live? Integration in any of those services or applications would give the service additional momentum. Synergies have lots of potentials, besides the already mentioned products there is the Windows Phone, Microsoft Outlook and Hotmail, Windows Messenger, Lync and even Kinect.

Microsoft could add Skype as an Xbox service which would be something that Sony and Nintendo do not offer. Consumers could be convinced to buy the next Xbox because of the additional home video conferencing options as Skype is not only offering voice over IP services but also video chat.

Microsoft has many products and services where voice and video chat integration makes sense.

Skype becomes a new Microsoft division, but will keep the brand and product. Plans are to continue offer Skype on non-Microsoft devices and platforms, which is a smart move considering that Skype is highly popular on the Android and iPhone iOS platform.

To come back to the initial question. What does the merger mean or change for you? It is likely that nothing will change, at least not in foreseeable time.

Interested users can watch the recorded press conference below.

What's your take on the purchase of Skype by Microsoft?

Microsoft Pays Big To Buy Skype

This is Melanie's take on the acquisition. On May 10, it was announced that Microsoft would be buying Skype for an estimated 8.5 billion US dollars. This is the most Microsoft has ever paid for another company. But why was Microsoft so interested in Skype?

Microsoft’s acquisition came as a surprise to the tech community. Only a few days ago, rumours were circulating that both Google and Facebook were considering acquiring Skype.

Why is it that Skype is so in demand by the tech giants of our day? Analysts say one reason is the possibility it offers for mobile voice communication. Skype currently has clients for all of the mobile platforms except Windows Phone 7. I’m thinking that Windows Phone will be getting their version soon. Skype is an obvious addition to Windows Phone 7, since that is currently the only major player on the mobile phone market without video chat capabilities.

Skype’s advantage over regular phone calls lies in its affordability. If you can get an internet connection on your phone, you can make Skype-to-Skype calls for free, and international calls do not cost much at all. This has huge implications for places where it is expensive to get a phone call out through the regular channels. If you’ve got Skype on your mobile phone and a half decent internet connection, you can make a call anywhere for virtual pennies, no matter where in the world you are.

Microsoft already has technology that parallels Skype PC to PC communication, but not the ability to make affordable calls from your PC or phone from anywhere in the world. Its acquisition of Skype shows that it feels this may be the way the world is headed, and it wants its foot in the door at the beginning, instead of having to scramble to play catch-up.

Other reasons Microsoft would like to buy Skype involve closing Google’s lead in the field on internet advertising, and/or integration in Microsoft’s Xbox and Kinnect technologies. It could be that Microsoft wants to use Skype to enhance its corporate offerings. It may plan to use Skype’s VoIP technology to improve its conferencing solutions.

It’s quite a gamble for Microsoft, though. Skype has never really been profitable. The 8.5 billion US dollars Microsoft paid was extremely generous, given Skype’s recent valuation. Some of the purchase money is going to pay Skype’s debt of close to 800 million US dollars. The very affordability of Skype’s VoIP products has meant that the company doesn’t turn a profit easily

Skype will become a division in Microsoft’s company, Microsoft Skype, and Skype’s Tony Bates will become the president of that division.

Microsoft’s acquisition of Skype is a sign of its intention to stay relevant in the fields of PC and mobile voice communication. It’s gambling on Skype’s ability to make itself indispensable to mobile smartphone users. Whether the gamble pays off remains to be seen.

What do you think Microsoft will do with Skype? What Skype features would you like to see rolled into other platforms? Is there anything Microsoft that you would like to see rolled into Skype?


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