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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?

Skype

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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