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MicroSkype - wow and why?

Rory Cellan-Jones | 15:36 UK time, Tuesday, 10 May 2011

"Wow" and then "Why? That's what the technology world is saying about the news that Microsoft is paying $8.5bn to acquire Skype.

Skype website

We've grown used to seeing outlandish prices paid for businesses without a proven path to profit. But this is the third time Skype has been sold and the asking price this time was roughly four times what the investors who bought a majority stake in the business paid back in 2009.

So why is a business which has fewer users than Microsoft's own Windows Live service and is still not profitable worth so much? One person who does not believe Microsoft has overpaid is Ben Horowitz. Now that's hardly surprising - his investment firm Andreeseen Horowitz bought a stake in Skype in 2009 and so has just made a huge return.

But in an interesting blog post, Mr Horowitz points out that similar scepticism greeted the 2009 deal and explains why the world was wrong then and is wrong now to think that shifting technology will leave Skype "in the dust" and its investors out of pocket.

Just two years ago, with Google Voice about to steamroller all opposition and Apple apparently planning something similar, it looked as though Skype would fade into irrelevance as the web went mobile.

That's proved completely wrong. Google Voice has not taken off in a big way, and is still not available outside the United States, and many users of Apple devices still prefer to use Skype rather than the FaceTime service which has been the subject of so many expensive advertising campaigns.

Ben Horowitz says that what Microsoft is getting is a brilliant team of technologists, led by the founders Niklas Zennstrom and Janus Friis, who have repeatedly proved that they can keep Skype at the forefront of modern communications.

Now Microsoft hopes to be a major force in the way we meet online, perhaps in business video conferences as well as in all those social encounters which Skype already facilitates.

So yes, there are some good reasons why Microsoft wants Skype. But I think we are still entitled to say "wow" about the price, and wonder whether the buyer was panicked into the deal on hearing that Google or Facebook might also be interested.

Comments

  • Comment number 1.

    Microsoft are showing all the signs of being desperate. In recent years they have been unable to generate new' profitable product ranges internally so....

    All Skype is, is a telephone exchange system with lots of subscribers who don't pay to use the system. (Indeed almost nothing more that a common or garden voip system / sip phone system can do as everyone with a suitable piece of terminal equipment knows and without a clunky software interface.)

    So the only revenue opportunity is flogging adverts! I also wonder if MS are really getting a "brilliant team of technologists"?

    All the signs that MS has, very expensively, lost its way.

  • Comment number 2.

    Sounds like its an expensive loss-leader. Skype doesn't make money, but it is popular. At the moment its available on multiple platforms.

    Expect that to change.

    Skype, Only on Windows, the ads will go......

  • Comment number 3.

    People have been waiting for Skype to add video to its Android app - will this now be blocked? Will Microsoft restrict Skype to Windows phones and dump ios as well? Would be a big short-term loss of revenue, but might be a long term win for Winphone.

  • Comment number 4.

    No one who’s willing to spend that kind of money is being stupid and if the figure was pushed up by other parties that shows how much the end goal is worth. Thinking, mobile computers, Xbox Kinect and Microsoft’s move to ARM chips for it's flag ship OS and place into that Skype, a cross platform application for VOIP and you can see how the big picture might look.

  • Comment number 5.

    Definitely a WOW.. some reasons why they may have taken the decision.

    MS is a shareholder in FB.. expect Skype and FB to become much closer [eg skype your friend direct from FB, import friends etc..]. What does this give MS?
    - People spend yet more time on FB and it becomes the communication tool of choice for a generation. this provides further opportunity for marketing and monetizing FB;
    - Video chat from FB, provides FB more time to convert ads
    - MS can get onto Apple/Android phones frankly...this will annoy Gates and Google a lot

    Upgrade Skype Out and drive revenue via mobiles
    - Nokia (effectively a division of MS) pushes Skype on all users and provides a cheaper data plan for outgoing calls;
    - Pushes calls on Android/Apple via Skype with cheaper call options

    What can they do with Skype and XBox?
    - Push communications onto the Xbox while people are at home and help in making the Xbox the living room tool of choice (they already offer video downloading etc..so this helps).

  • Comment number 6.

    I really don't understand this deal, Skype only makes a couple of hundred million dollars a year.

    However, Skype has efficiency, privacy and security issues, so it is in good company with Microsoft.

  • Comment number 7.

    I think I will start growing Tulips.

  • Comment number 8.

    This deal makes no commercial sense at all.
    The Skype technology is very non-standard.

    The customer base, although large, is not generating profits and not likely to.
    The technology underpinning Skype is not particularly valuable, and remember EBay does not hold the IP. MS devices ALREADY have an instant messenger embedded.


    And Skype is not cache of genius staff worth pinching.

    MS could try to incorporate Skype into their WP7 handsets. But they could do that for free!

    Either way, it will alienate the carriers.

    No idea what Ballmer was thinking.

    C.

  • Comment number 9.

    They will probably rebrand it or just encorporate it into Windows Live Messenger. They could have tried to simply do it anyway, but with Skype being the main competition out there, they would just be following in the shadow of another company who already has a massive customer base.

    Buy the company you buy the customer base. Update Windows Live Messenger, encorperate the Skype network and then push it out. Just enable people to login with Skype sccounts or have them link their already created Skype accounts with Windows Live ID's, Simple. I think the latter is what will happen. Since minus being able to call landlines, Windows Live Messenger does what Skype does already so it makes no sense for Microsoft to buy it unless this is what they wanted to do.

  • Comment number 10.

    I must also ad that might mean they can remove ad's from Messenger since it will be bringing some form of revenue, but even if they don't remove ad's it does mean that messenger will bring more revenue than it does now since it is a completley free ad supported service.

  • Comment number 11.

    I don't like being sold for around $14.85. I dont want to be part of the Ballmer business case. So I voted with my feet.

    You cant delete your Skype name - in effect they own it - so I have cancelled my automatic top up payment I will run my account down to $0. I am deleting all my contacts although unfortunately they will still be kept in the system somewhere.. I edited my public profile so that all my friends and contacts know how and where to contact me now and why I have dropped Skype. Maybe some of them will do something similar.

    There are plenty of acceptable free and open source alternatives out there and now incentive for some to make them as good as Skype or better.

  • Comment number 12.

    Agree Charlie's comment (5).

    Value is not just what you can make out of an acquisition, but also what you may lose if someone else takes it over - this is definitely the second one.

    This is strategic - only deal available out there for Microsoft, having missed the Search (Google), social networking (Facebook/ Twitter) and smartphone (Apple) waves.

    Industry perception is that the battle now is all of the above available on smartphones - hence the combination of Microsoft/ Nokia/ Skype is critical to Microsoft.

  • Comment number 13.

    I’d like to begin by referring to comment No. 11. For this was really what has made me comment myself.

    It seems a very foolish thing that you use something to stay in touch with people, and said people have got used to being able to contact you using Skype. You clearly have enjoyed the service and are more than a casual user to have a running paid account that automatically ‘tops up’.

    But because Microsoft buys the said service, and as of right now there has been not one bit of change to the service you use, you still felt the need to walk because you felt you had been sold for $14.85.

    I am at such a loss to work out why people ‘walk with their feet’ over such issues. I use Skype a lot. I have a Voip phone and an ‘0203’ number that people can call, routed through Skype. I personally hate their new version of software used on the on the desktop so stuck with Version 4. But it works well, is good sound quality and allows me to stay in touch for free, or very cheaply, with people.

    I don’t care who owns this service. I don’t care that somehow I was sold, or that the once ‘cool and new’ company called Skype is now part of the big beast that is Microsoft. As long as I can make a call and it works that is all I care about.

    I do hope however Microsoft do not ruin the experience as they did with Windows Live Messenger. I grew up using MSN and then they ‘over socially integrated’ the whole thing and took away a bunch of features. I did not stop using it, I used a third-party that allows me to communicate with my ‘MSN’ contacts without having to use the horrid version Microsoft pushed upon me.

    Microsoft can get things wrong, but it also can et things very right. Windows 7 has it’s flaws sure but it was only the other day I had to use a friends Vista laptop and remembered the teeth pulling experience that is. So they can change, and should not be thought as the terrible big boy who because buy something, we must all flee from.

  • Comment number 14.

    @13 London Rascal

    ***"I don’t care who owns this service. I don’t care that somehow I was sold, or that the once ‘cool and new’ company called Skype is now part of the big beast that is Microsoft. As long as I can make a call and it works that is all I care about."***

    Ah, but that's just the issue. At the moment Skype is available in multiple platforms. Microsoft are, almost certainly, going to want to use Skype as a marketing tool for *their* platforms (Windows and Windows Phone), so expect Skype to vanish from Mac, iPhone, iPad, Linux, Android and Blackberry.

    There is no money in Skype as it is. Its only use is to encourage people to use Microsoft products, and Microsoft can only do that by discontinuing support for non MS platforms. MS need something to boost their flagging Phone 7 platform. Skype could be that something, but not while it is still available on iPhone, Android and Blackberry.

  • Comment number 15.

    I also think this is a WOW - maybe a bit overpriced - but with Skype one thing they are getting (in addition to a very useful app and huge user base) is a well-tested, well encrypted and massively scalable p2p network protocol and virtual infrastructure (based on the FastTrack stack from Kazaa). From a technical point of view, in our hugely connected - cloud metaphor world, when integrated fully into an OS, this offers a huge list of possibilities. (And, be warned - future malware vectors)...

  • Comment number 16.

    Microsoft has brought the brand 'Skype' rather than for the business.

    Everyone knows of Skype, rather than 'Windows Live'.

  • Comment number 17.

    Well, its a great boost for Google Talk - but then I don't expect the BBC/Microsoft Alliance to report on that.

  • Comment number 18.

    I think the deal makes a lot of sense. Once integrated into Windows 7 mobile, and by extension all Nokia smartphones, then you could forsee someone having a video call between an Xbox and a Nokia phone, or a Nokia phone and PC.

    Apple, by contrast, has a smaller ecosystem and only phones and iPads. This deal may help undermine FaceTime considerably.

    People tend to stick with what they know - getting people to migrate to a new VoIP system when all your friends and family are already using something else - is extremely difficult. Microsoft avoids this trouble too, by picking up a huge userbase.

    The only thing I question is the price... it seems very high. But you don't know what other bidders were after Skype, pushing up the price.

  • Comment number 19.

    I am not sure where everybody seems to get the idea that Microsoft only develop windows software, yes its the bulk of their products and that's understandable, but look at there current Mac offerings, Office 2011, Messenger for Mac, Microsoft Expression, Windows Live Mesh, and an RDP client. Their current IOS software, Windows Live Messenger, One Note, Bing Search, Photosynth, Tag Reader.

    Along with this they also work to make sure there back end servers work with other operating systems, Active Sync on Android/IOS?

    Is this really a company that provides nothing for other operating systems, its not appearing that way to me

  • Comment number 20.

    I think we should all bear in mind that the web is hardly any age at all, and the world is fumbling around trying to imagine how it might be most profitably used and what shape it will have. The founders of Skype should immense foresight when the service was established and I think in their vision is the germ of what it might become. I'm not at all surprised that similar ventures by Google and Apple haven't taken off: surely we have learned by now that the equation isn't simply money = success in whatever that money is thrown at. (Then there's 'Apple TV: what exactly is that all about?). Rather like the iPad, Skype is almost a generic word for worldwide communication (as in 'I'll skype you'). That should tell us something. Perhaps Microsoft thinks along the same lines, perhaps it simply doesn't know what to do with the immense profits it makes. But buying Skype isn't as daft as some seem to think.

  • Comment number 21.

    @14 { Ah, but that's just the issue. At the moment Skype is available in multiple platforms. Microsoft are, almost certainly, going to want to use Skype as a marketing tool for *their* platforms (Windows and Windows Phone), so expect Skype to vanish from Mac, iPhone, iPad, Linux, Android and Blackberry. }

    But why? Microsoft Office hasn't been pulled from Mac OS X, they've written apps for Android devices, and they've written apps for iOS (iPhone) devices. That doesn't suggest to me that they'd want to pull Skype from other platforms.
    You also need to bear in mind that you don't know what Microsoft is planning... and they may well be looking at Skype for the future as opposed to making money from it as soon as the acquisition is made.
    As for @11 - better to be valued for $14.85 than to be valued for $0 - better to be worth somethig than worthless. :P

  • Comment number 22.

    I have had another think about M$ splashing out inadvisedly.
    Easy come easy go. What else are they to spend their easy money on?

    They never have been a technological innovator.
    Always in the money and playing catchup.
    The difference this time is that there is precious little innovation.
    Doesn't stop them spending their easy money though.
    Just goes to show how easy their money is...

  • Comment number 23.

    13. At 11:37am 11th May 2011, London Rascal wrote:
    "I do hope however Microsoft do not ruin the experience as they did with Windows Live Messenger."

    I think it's a betting certainty that they will. Shame...

  • Comment number 24.

    John_from_Hendon said "In recent years they have been unable to generate new' profitable product ranges internally so...."

    Are you sure about that? What about Xbox, Xbox360 and Kinect?

    In the business world what about Windows Azure?

    Coming to the present day we have WP7 and the new deal with Nokia.

    In the near future we have Windows 8 running on ARM architecture and Microsoft are abstracting hardware entirely away through the .NET framework. Think about that for a moment.

    Do you really think MS are desperate? I don't.

  • Comment number 25.

    Sold at $8.5bn with a turnover of $1bn! That is some bubble. Fantastic deal for the Skype shareholders. As for users, they just hope that Skype continues to function.

  • Comment number 26.

    I don't think MS will discontinue support for other devices, as that might go against them. I mean how else will you be able to talk to to your Apple friends from a PC...answer, Google Talk. They probably want to buy skype to harass the user base into continuing to buy products like windows 8 and so on.

  • Comment number 27.

    Skynet established (Skype and Microsoft's .Net framework). Even came into being the same year as the machines attack in the films.

  • Comment number 28.

    @21 "But why? Microsoft Office hasn't been pulled from Mac OS X"
    What about Linux - a platform which Microsoft has been actively attacking for years - we already have to put up with a Skype client that is older than the Windows/Mac OS ones? Now that Microsoft own Skype I can see the Linux client being shelved.

    @24 "In the near future we have Windows 8 running on ARM architecture and Microsoft are abstracting hardware entirely away through the .NET framework. Think about that for a moment."
    What is so special about .net? I wouldn't touch it with a barge pole, same goes for Mono.

  • Comment number 29.

    RIP Skype.

    Long live http://viber.com/ ??

  • Comment number 30.

    RIP Skype?
    Long live Viber!

  • Comment number 31.

    I would be more worried about the fact that if you merge :

    Skype and Microsoft.net

    You get "Skynet"

    Any one who has watched "The Terminator Series" will not be happy !

  • Comment number 32.

    Another fine independent product consigned to a future of mediocrity. As a user I fully expect future versions of the software to be taken over by advertisements and bloat.

    (For those people mentioning "viper" - I suggest you read the privacy statement. You can only use the service if you agree to share ALL YOUR CONTACTS with them - a potential violation of OTHER PEOPLE's privacy. A legal nightmare for users if this information ever goes astray.)

  • Comment number 33.

    This comment was removed because the moderators found it broke the house rules. Explain.

  • Comment number 34.

    I am afraid to say this but at the earliest next year, Microsoft will cease support for Skype on other platforms i.e. Android, Mac, Ios, Blackberry etc. We will see Skype intergrated into MSN, Xbox live and other new services. In all fairness they paid huge bucks and can do as they please to get an ROI

  • Comment number 35.

    If people would like to explore an issue rather than taking a single blog entry upon it before making their minds up they could, rather easily, find the press release from Microsoft over their acquisition of Skype. Why would one fancy spending the time reading this? Quite simply it would answer, and perhaps allay, some of the fears that are expressed here; Mainly that Skype will not be developed any further on other platforms.

    From the press release (please see last sentence for clarity):

    "Skype will support Microsoft devices like Xbox and Kinect, Windows Phone and a wide array of Windows devices, and 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."

    Until Microsoft break that I see no point in being up in arms over something that has yet to pass.

    (I use Skype daily, making Skype to Skype calls from an XP machine to the Mac machine of a loved one in Australia: and am even in a Skype call as I type this. I just see the comments posted by nearly everyone that Microsoft will ruin this... Internet Prophets are of course the best Prophets...)

    http://www.microsoft.com/Presspass/press/2011/may11/05-10CorpNewsPR.mspx

  • Comment number 36.

    I marvel at the irony of this deal, in that MSFT have just paid several billion to an Andreeseen company. I wonder if Marc would be interested is sharing some of this out to those at Netscape who were casualties of MSFT's abuse of monopoly during the browser wars.

  • Comment number 37.

    The amount of money may sound crazy but consider the way communication will change over the coming years. The land line network will be taken over by the data network and all calls will eventually be routed through IP.

    Microsoft have purchased an established video/voice IP infrastructure that they can integrate into all their flavours of operating systems. And from my experience Skype have already been reaching out to other non-standard platforms and I suspect this is part of the reason why Microsoft may have been attracted to it (For example I came across a Sony Bravia TV recently that supports Skype calls)

    If Microsoft want to remain to be a dominant player in the post proprietary OS world they need to get into the heart of the services consumers are using. Hence their share in Facebook and now the purchase of Skype. I agree with previous comments that we may see a close alliance with Facebook and Skype in the future.

    In the end, a business is only worth what someone is willing to pay for it and Microsoft have the reserves and will to beat the competition to the prize so its not surprising that we see a sale with such a 'Wow' factor.

  • Comment number 38.

    I think that to say "what Microsoft is getting is a brilliant team of technologists" is actually missing a major contributor to Skype's worth. From my experience in telecomms and establishing telco's a significant part of the valuation will be Skypes international telco interconnect arrangements - these take time and money to establish.

  • Comment number 39.

    It will be interesting to see if Skype remains a free service. I suspect that the free part will soon become subscription only.
    This may be an exercise in removing the threat to the revenue stream of the telecoms operators, an area where Microsoft may have ambitions.

  • Comment number 40.

    Another move by Microsoft to deter the growth of Open Source.

    First was Nokia lured towards using the Windows OS on their Mobiles instead of Qt and now buying off Skype to hinder open source competitions.

    Well done lads !

    Good gosh Google is more powerful to keep the idea of Open Source software alive.

  • Comment number 41.

    @ Comment 19

    Yes, Microsoft only really cares about itself and makes software for Windows. As an avid Linux user of some years I know exactly what I speak of!

    MS may have branched out a bit with some software for the Mac, but they provide no software binaries which run under Linux. That doesn't bother me too much as there are plenty of open source software packages which are (genuinely) powerful, (genuinely) well supported and (genuinely) entirely free. But programs like Messenger, Internet Explorer and Office do not run natively under Linux. There are a couple of ways you can get them to work (although why anyone would actually choose to use IE is absolutely beyond me) but it would be nice if the support was there. For MS that shouldn't be too hard and certainly not that costly. As for Bing, well, that's essentially an internet page. If MS blocked access to their search engine on the basis of your operating system then that really would be disgraceful.

    Another, more esoteric example, Windows OSs do not come with support for open source file systems, such as Ext4. Implementing such support into the Windows kernel should be fairly trivial. Similarly, the specifications and technical details of the NTFS file system format are not in the public domain. Linux kernel modules which enable read/write to NTFS partitions only exists because a few very clever people were able to backwards engineer the standard.

  • Comment number 42.

    Microsoft make software for other platforms. Skype has a big install base across a number of platforms. Do you really think they would financially cut their own throat and make it an Microsoft only product. I can’t see them spending all that money and then dropping most of the OS’s that are the reason Skype is supposedly worth what it is today.

    I think the service/application will still be available under all other OS’s but they will no doubt integrate it more into MS products and enhance it more under their own platforms. That would be the smarter thing to do.

  • Comment number 43.

    If Microsoft didn't buy it, Google/Apple or anyone else probably would have. Microsoft are not buying the profitless service their buying a service that will be used to link your life into one piece of software.

    You will likely see soon Skype in most of your life, it will possibly help Microsoft break into the video conferencing business, after all marry kinect and Skype and its there. VOIP between family living-rooms without the webcam etc.

    Microsoft quite possible got a bargain for what they will now be able to integrate to their systems.

  • Comment number 44.

    oovoo is already better than Skype and now the chances are Skype will become a windows only platform, oovoo is only going to get more dominant

  • Comment number 45.

    @35 those of us in the know don't trust MS as far at it's possible to throw them. Their policy is Extend, Embrace, Extinguish and has happened many times in the past (see their support of openoffice formats for a contemporary example). Skype WILL become windows only in the future - albeit when penetration is high

    Under Microsoft Skype is going to stagnate - NTFS doesn't even have filesystem journalling which is why you must run chkdsk if it's unmounted forcefully. Linux had journalling in ext3 which has been around for more years than I care to remember.

  • Comment number 46.

    Adrian, how will I soon see Skype in most of my life when I have no intention of installing Skype, or any Microsoft software, ever? There are plenty of other VoIP software packages, many of which are free and open-source.

    Linux and Mac OS X are quietly gaining share of the PC usage share month on month, *nixes already dominate on super computers, servers, embedded devices, it's only a matter of time before *nixes dominate on PCs as well.

    Microsoft is a dead duck. Vista is dead. Win7, 2 years after its release, still hasn't ousted XP which MS wanted to do by officially retiring XP over 2 years ago. If you are still running XP without a service contract, which I suspect most non-business users are; it's the equivalent of driving without a seatbelt, when you crash you're going to get hurt.

    There is some good news, XP malware is in decline. The bad news? It's moving to Win7.



  • Comment number 47.

    @ 18 / Hostile17; this deal actually shoots WinMob in the foot. Cell networks already are under a lot of pressure losing voice revenue and increased data loads, if MS start trying to push handsets that take even more voice revenue away and more data loads then expect the networks to stop stocking them... Except 3 who seem to be crazy enough to try the "let's not make any money" thing.

  • Comment number 48.

    This shows MS has a lot of money to spend. Probably would not be a surprise if MS end up selling or destroying Skype over time. This then leaves their own "MS Live" solution to be integrated into corporate platforms.

    What it does offer is a potential move ex Google/Apple. For Apple expect their Facetime offering on MS/Android platforms which has been the main block to moving it forward.

 

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