Why Microsoft Is Buying Skype For $8.5 Billion

Microsoft is bringing Skype—the firm that basically kicked off the home VoIP revolution—into its ever-expanding universe. Will it be worth the huge price tag?


Microsoft's purchase of Skype for a reported $8.5 billion is as good as done. It's a maneuver that'll spawn an even bigger company out of two existing tech giants. In addition to the over 600 million subscribed users, the deal will give Microsoft some of Skype's core tech, which it could inject into its business software for videoconferencing needs, its home computing environment, and even gaming.

Allegedly championed inside Microsoft by none other than CEO Steve Ballmer himself, the deal ends a recent spate of rumors that suggested Facebook was also trying to partner or buy the VoIP firm. Skype has been courting buyers for some while, apparently driven by investor pressure due to nervousness about a delayed IPO and possibly also due to stalled revenues. Microsoft is said to have joined the acquisition discussions last, but has won over its competition—which possibly even included Google.

Microsoft can benefit by potentially integrating Skype into its Office solution, bringing Skype's multi-user video conferencing abilities into its enterprise productivity package. Skype gets a direct cash payment, which will sate its investors' desires, and potentially a bigger future integrated into one of the world's biggest tech firms. Facebook, another Skype suitor, benefits because the deal means Google doesn't get hold of Skype—a move that could have seriously boosted Google's efforts at controlling how business and home users communicate over voice and video.

But there're also a couple of other things to think about: Microsoft's Kinect system would seem a natural partner for Skype. Its cameras can track a user's movements in front of its sensor arrays, and it's typically mounted beneath a family TV as part of an Xbox 360 installation—meaning every Xbox owner could quickly become a Skype video calling user. Microsoft could integrate Skype tech into its Windows Phone software, and the upcoming partnership with Nokia may be a good outlet for the tech, which would be a competitor to Apple's limelight-grabbing FaceTime. Plus Skype already has those 600 million subscribers on board, which could give MS access to a rich database of new users (assuming the terms of the deal meet regulatory approval in this regard). That's 600 million potential new customers Microsoft is buying.

But it's probably worth keeping in mind Skype's slogan, "take a deep breath," because there's a huge shadow over this deal. The dark cloud hovers over the amount MS paid, and whether the software behemoth can actually turn Skype into something new and successful that's worth the price.

[Image: Flickr user coldfervor]

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  • Jym Allyn

    My understanding is that the deal actually went through on April 21 2011 and according to executive Miles Dyson, Microsoft has appropriately relabeled the company "Skype-net."

  • atimoshenko

    Between Messenger, Lync and massive R&D facilities, Microsoft is not lacking anything that Skype can offer it. Microsoft bought Skype because Ballmer is Ballmer.

  • James Murphy

    Hmm, they've got Video calling in messenger (and for that matter dial out and dial in) oh and every XBox Live account is a messenger account... They've got group video conferencing and all the nice business stuff in the Lync clientThey were already going to get Skype on the Phone - I suppose this guarantees that that will actually happen.
    Yes, there is some nice technology (and some clever but in some respects "not nice" tech too) - but frankly I'm not convinced that its much that they couldn't achieve for themselves (even assuming that they haven't already)
    What Skype has is a brand and this purchase denies both the brand and the ability to do things with the brand to Microsoft's "competitors" - that may have some value.

  • Larry

    Jim - you're right, but... having much of the technology to do some things does not give you a brand or name recognition you may need to catch up or overtake competitors. My guess is Microsoft will continue to support Skype as it exists at least for the moment and then develop it further integrating some of its own technology and services and that's where the growth will happen. Video conferencing, face to face phone calls, education uses, game uses of course, etc. are where we're going to share, keep in touch, do business and make connections. If no one knows the services you have, as great as they are, few use them. Microsoft bought a brand, Skype, and will probably build what has already around it and expand it. It could lift many of its existing products and positively affect its brand name - depending on the execution!