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..for $8B. In and of itself, this isn't particularly exciting since I cannot see what additional value MSFT will bring to customers or what operating synergies they will find, but what is interesting is that the Canadian Pension Plan bought Skype at a discount only a couple years ago and will make a very nice return on the investment. Sweet!

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I was shocked to hear this this morning. Just last week, we were told that Google and Facebook were also in talks with Skype.

If anything comes out of any of these deals, I hope the purchasers improve the software. On any platform other than Windows, it's terrible.
 

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Last year the company posted revenue of $860 million and $264 million in operating profits, but still had a loss of $7 million. The company had $686 million in long-term debt as of Dec. 31.
Skype is:
  • not new
  • it already has a zillion users
  • now has many competitors in VoIP services and Google vice
So MS wants to pay $8 billion for a company with revenue of $860 million and profits of $264 million?

That means MS will pay about 9 years worth of revenue. Are they crazy?
 

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Apparently, Skype version 5 for Windows ain't so hot either. Many people have reverted back to older versions of Skype just to get everything working again.
 

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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.
Skype will become a new business division within Microsoft.
 

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complete press release

Microsoft acquires Skype

Microsoft Corp. (Nasdaq: MSFT) and Skype Global S.à.r.l. today announced that they have entered into a definitive agreement under which Microsoft will acquire Skype, the leading Internet communications company, for $8.5 billion in cash from the investor group led by Silver Lake. The agreement has been approved by the boards of directors of both Microsoft and Skype.

The acquisition will increase the accessibility of real-time video and voice communications, bringing benefits to both consumers and enterprise users and generating significant new business and revenue opportunities. The combination will extend Skype's world-class brand and the reach of its networked platform, while enhancing Microsoft's existing portfolio of real-time communications products and services.

With 170 million connected users and over 207 billion minutes of voice and video conversations in 2010, Skype has been a pioneer in creating rich, meaningful connections among friends, families and business colleagues globally. Microsoft has a long-standing focus and investment in real-time communications across its various platforms, including Lync (which saw 30 percent revenue growth in Q3), Outlook, Messenger, Hotmail and Xbox LIVE.

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.

"Skype is a phenomenal service that is loved by millions of people around the world," said Microsoft CEO Steve Ballmer. "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."

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.

"Microsoft and Skype share the vision of bringing software innovation and products to our customers," said Tony Bates. "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," Bates said.

"Tony Bates has a great track record as a leader and will strengthen the Microsoft management team. I'm looking forward to Skype's talented global workforce bringing its insights, ideas and experience to Microsoft," Ballmer said.

Speaking on behalf of the investor group that sold Skype to Microsoft, Egon Durban, managing director of Silver Lake, said: "We are thrilled with Skype's transformation during the period of our ownership and grateful for the extraordinary commitment of its management team and employees. 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."

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. Skype has made impressive progress over the past 18 months under Silver Lake's leadership, increasing monthly calling minutes by 150 percent, developing new revenue streams and strategic partnerships, acquiring the intellectual property powering its peer-to-peer network, and recruiting an outstanding senior management team.

Other members of the selling investor group led by Silver Lake include eBay International AG, CPP Investment Board, Joltid Limited in partnership with Europlay Capital Advisors; and Andreessen Horowitz.

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.

About Skype
Skype is communications software whose purpose is to break down barriers to communication. With an Internet-connected device, families, friends and colleagues can get together for free with messaging, voice and video. At low cost, they can also call landlines or mobiles virtually anywhere in the world. Skype has recently introduced group video, allowing groups of more than two people to do things together whenever they're apart.

Founded in 2003 and based in Luxembourg. Skype can be downloaded onto computers, mobile phones and other connected devices for free.
 

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thats a big buy for MSFT...gotta wonder if its a little late in the game to buy skype though.

It has alot of "users" but I cant help but think its another "my space" that will be replaced soon by the newest coolest thing to come along.


Microsoft has long ago stopped being innovative and has become reactionary to online trends. Playing catch up by buying these companies kind of smells a bit like desperation. They had MSN messenger which was #1 and did nothing with it allowing skype to take hold...now they go out and buy them for 8 billion. :)
 

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I'm having difficulty figuring out what MSFT is thinking here. Skype has a proprietary VoIP network that is of value, but it's quite a bit smaller than Microsoft's own "Live Messenger" user base.

I was thinking "maybe they're buying Skype's existing integration with the phone network". You know, an added advantage to their WP7 platform. The problem here is that adding a feature like Skype in the base OS will turn all the carriers partners (AT&T, etc) into angry partners. The users may love it though. Besides, if you look at phone plans in the US, the cost of voice "minutes" has been dropping dramatically. While it could still be huge savings for Canadians (who, with the big 3, get totally screwed on the per-minute price of long distance), I don't think it will be long before the "unlimited voice" deals become standard on all carriers north of the 49th parallel.

I much prefer Google's approach of engineering their own solution with their products Google Voice, etc.

My next thought was "boy, eBay must be feeling foolish right now" since Skype was a white elephant for them. I don't think the investment group that purchased Skype from eBay did much with the company before reselling it, certainly nothing that would triple the value.

That said if the WP7 integration is excellent and the Canadian carriers resume their craptastic pricing of voice, I may get an unlocked WP7 phone for excellent Skype integration, extend my middle finger to Bell, and never make a voice call again for the rest of my contract.
 

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The biggest advantage I see is for integration into WP7. That's also the only project I see MS spending this type of cash on. For their software offerings, MS usually rolls their own integrated solution.
 

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thats a big buy for MSFT...gotta wonder if its a little late in the game to buy skype though.

It has alot of "users" but I cant help but think its another "my space" that will be replaced soon by the newest coolest thing to come along.
You're forgetting about their subscription based business model such as the voice plan I use as a backup: North America for $3 per month. And since my Nokia N900 smartphone has Skype fully integrated into the device, I can make voice calls to landlines and mobiles wherever I can find a reliable Wi-Fi connection.

That's where Microsoft can win big here. If they can make that subscription based business model grow and possibly build their own Wi-Fi network in major cities, you could see a migration from traditional CDMA/GSM mobiles to Wi-Fi mobiles, all built around existing Wi-Fi equipped smartphones and an ever expanding Skype network.
 

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for that to be viable you would need WI-FI everywhere. There are many competitors out right now that allow you to make free calls anywhere in North America over WI-FI.

There are quite a few opposing forces also that would not like to share their cash cow with Skype and Microsoft.

Then there is Google...whatever Microsoft can offer..Google does it better and cheaper.
 

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And let's not lose sight of the fact that Skype's margins can only go down...they are already higher cost than many legitimate competitors like voip.ms and dozens of others....

I just cannot imagine how this represents a prudent use of investors money.
 

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And let's not lose sight of the fact that Skype's margins can only go down...they are already higher cost than many legitimate competitors like voip.ms and dozens of others....
I don't think Skype is necessarily more expensive. You can get unlimited calling to US + Canada numbers for $3/month on Skype. VoIP.ms doesn't have anything similar to that. Sure, Skype has a worldwide rate of $0.023/minute which is higher than calling in Canada and the US (per minute) using voip.ms, but there are many international calls using VoIP.ms that would be more than that.

Not to mention that Skype has many cool features that are unavailable to SIP phones (video calling, desktop sharing, instant messaging, etc).
 

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I think Ballmer should have been fired years ago. He's a lousy CEO. In the last ten years, Microsoft stock has gone nowhere and now he's ridiculously overpaid for Skype. That $50 billion in cash could have bought RIM or a company that can really help MS.

I'd buy a ton of MS shares tomorrow if they kicked Steve out today.

Throw the bum out!
 

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I can't say I'd buy a ton of their shares tomorrow, but it would certainly change my outlook on the company.

It's going to take many, many years to undo the damage Ballmer has done to their culture, product strategy and public perception.

Most importantly, though, he's foolishly squandered tens of billions of dollars of shareowner value, and that's always been the basis for my strong opinion on the topic.
 

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What I find so mystifying about his longevity in that role is that so many of his Redmond workmates and colleagues (Bill Gates too) are wealthy in Microsoft stock holdings, although many of them have been shedding it like crazy over the past few years including Steve. This kind of executive direction has got to be hurting lots of them right where it counts... on their bottom line.

Skype just doesn't seem to add any value to Microsoft.
MarcP said:
Maybe Skype holds some pretty valuable patents.
That would jibe with much of what Ballmer has been saying and doing recently regarding Novell, Nokia, etc. but it remains to be seen if that is some sort of secret sauce in the Skype deal. I don't believe Skype ever said so.
 
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