Microsoft's $8.5bn gamble on Skype: Can they make the leap into VoIP integration?

11/05/2011

It's a massive sum for a company that doesn't turn a profit, but could internet phone company Skype finally get the step-change it needs? Microsoft's dominance in Office could see Skype integrated into the operating systems of hundreds of millions of PCs, as well as the growing Windows Mobile platforms. This could be game changing, but given Microsoft's history of its previous phone services, the precidents are not great. Here's the details of the massive deal; next stop is your desktop...

11/05/2011

microskype.jpg

Microsoft bought web telephony firm Skype for $8.5bn (£5.2bn) in cash, marking the software giant’s biggest buyout in it's 36 year history.

The deal will see Skype support Microsoft devices such as gaming console Xbox, Kinect as well as a wide array of Windows applications.

Microsoft will connect Skype users with Lync, Outlook, Xbox Live and other communities.

A Skype sale has been speculated upon for weeks, with Google and Facebook also rumoured to be interested.

The Luxembourg-based firm allows its 663 million users to make voice or video calls over the internet and is privately-owned by among others auction site eBay.

Founded in 2003, Skype was acquired by eBay in September 2005, and then acquired by an investment group led by Silver Lake in November 2009. The deal represents a nice payday for eBay, which retained 30% of the company following the $2bn sale in 2009.

Struggling profits

Skype is popular for its free calling services, which can be made to other Skype users, and has around 8.8 million paying customers per month.

The amount of call time on Skype’s network totalled 207 billion minutes last year, according to regulatory documents.

However, the popularity of the free calls has made it difficult for the company to make money since it was founded by entrepreneurs Niklas Sennstrom and Janus Friis.

Last year, Skype reported a revenue of $860m on which it posted an overall loss of $7m, and a long-term debt of $686m.

Boost for Microsoft?

Microsoft is hoping the deal will give boost its standing against rivals Google and Apple.

"The companies have entered into a definitive agreement under which Microsoft will acquire Skype, the leading Internet communications company, for $8.5bn in cash from the investor group led by Silver Lake," the two firms said in a joint statement.

The transaction has been approved by the boards of directors of the two companies.

Microsoft is estimated to have cash worth $48bn and the Skype deal would become its largest acquisition in around 36 years. The software major's last big-ticket deal was the $6bn purchase of advertising firm aQuantive in 2007.

"Skype is a phenomenal service that is loved by millions of people around the world. Together we will create the future of real-time communications so people can easily stay connected to family, friends, clients and colleagues anywhere in the world," Microsoft CEO Steve Ballmer said.

New Skype division

Post acquisition, Skype would become a new business division within Microsoft, and Skype CEO Tony Bates would become President of Microsoft Skype Division , reporting directly to Ballmer.

Skype will become a new business division within Microsoft, and Skype CEO Tony Bates will assume the title of president of the Microsoft Skype Division, reporting directly to Ballmer.

Skype would support Microsoft devices such as gaming console Xbox, Kinect as well as a wide array of Windows applications. Microsoft will connect Skype users with Lync, Outlook, Xbox Live and other communities.

Microsoft will continue to invest in and support Skype clients on non-Microsoft platforms, the release added.

"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," Skype CEO Tony Bates said.

"We are excited about Skype's long-term future with Microsoft, as it is poised to become one of the world's most dynamic and comprehensive communications platforms," Silver Lake MD Egon Durban said while speaking on behalf of the investor group that sold Skype to Microsoft.

The acquisition is subject to regulatory approvals and other customary closing conditions. The parties hope to obtain all required regulatory clearances during the course of this calendar year.

<< Back to today’s Digital Intelligence news

Copyright ©2000-2019 Digital Strategy Consulting Limited | All rights reserved | This material is for your personal use only | Using this site constitutes acceptance of our user agreement and privacy policy