While Google was busy launching its Music Beta service at Google I/O this morning, Microsoft dropped its own bombshell of a news headline by announcing its agreement with Skype to acquire the online communications company for $8.5 billion in cash. It’s a large markup from the $3.1 billion that EBay paid for the company back in 2005, but somehow Microsoft thinks its worth it.
According to several analysts, Microsoft isn’t buying Skype because it expects Skype to generate lots of revenue on its own — rather Microsoft is banking on Skype’s technology to improve its other products. It’s a good thing too, because according to Wired:
…that seems like a rich price tag for a company that only generated $860 million in revenue in the most recent year and $264 million in operating profit — yet no net profit at all. Microsoft is paying about $50 for each of Skype’s 170 million users, or about $1,000 for each of its 8 million paying customers.
That’s a lot of money for a fairly mature company that doesn’t make much in revenue. Fortunately, Microsoft appears to be content to let Skype exist within the company as its own entity, without folding it into, say, Windows Live Messenger. It also won’t deviate from Skype’s current support for Mac, iOS, and Android devices as well.
As a Skype user there probably won’t be much change in how you use the service, at least initially. However, it might lead to some more interesting things down the road especially with Xbox Live and the Kinect, along with Windows Mobile. As a heavy user of voice chat in Xbox Live games, I can certainly say that an improvement in voice chat quality would go a long way to enjoying games with friends and acquaintances more. There’s also the obvious synergy with utilizing the Kinect video sensors and Skype’s already built in userbase to make the “Minority Report”-style video communications tool a reality.
PaidContent also thinks that Microsoft stands to gain a lot of ground in the mobile arena with the acqusition of Skype as well:
Skype—once a cannibal threat to voice revenues—has slowly, slowly been finding a seat the table with mobile operators, too. Now that they are moving to faster networks and getting more jazzed up about data services, there could be an opportunity for Microsoft to leverage Skype’s services with those others that it already offers to operators to run their networks.
How many times have you felt that Skype voice quality was at times better than, say, AT&T calls from your iPhone?
If I were a Microsoft investor, I’d be skeptical of the merger simply from the terms of ROI uncertainty. Yes, acquiring the company works as “defense” by keeping it away from Facebook or Google, but at what cost? Is $8.5 billion really worth the upgrade over developing a similar technology elsewhere? It’s like the Lakers spending $34 million for five years of Ron Artest a couple years ago. Sure he could be a slight upgrade over Trevor Ariza, but is overpaying for an unreliable “potential” upgrade really the best use of money?
I guess we’ll find out soon.
