At $8.5 billion in cash, Microsoft has placed its biggest bet on something that it didn’t build. Skype Technologies SA, the Internet phone company, is Microsoft’s largest acquisition as of date. The agreement has been finalized and approved by the Microsoft and Skype directors.
Skype will become, Microsoft Skype, a new division within Microsoft. Tony Bates, the current Skype CEO will be the president of the Microsoft Skype Division, and will report directly to Steve Ballmer, Microsoft CEO.
We all know that this acquisition is Microsoft’s most aggressive move to play the field in the worlds of communication, information and entertainment.
Microsoft describing how both the mobile and non-mobile aspects of the acquisition are going to work, said:
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.
This move by Microsoft doesn’t surprise me. Microsoft needs to add a communications component. It knows very well that it can no longer sit tight while the competition is slowly gaining an edge, with the increasing popularity of Google’s Voice and Apple’s Facetime Video-chat service.
While many feel that Microsoft paid too much for a company that’s not into profits, I feel Microsoft has gained immensely and has the capacity to do what it takes to take Skype to new heights.
Microsoft is sitting pretty with the power to integrate Skype’s free and low-cost Internet-based video and telephone services into many of its products: Kinect, Xbox, Windows Phone, Outlook and the enterprise IM service Lync, Bing and in any or all of its offerings.
Skype, which offered free and paid Internet calling and messaging services, has over 663 million global users; although active users are only around 124 million, and only 8 million paying users.
Skype was bought by eBay for $2.6 billion in 2006. But eBay sold 70% of its stake for $2.9 billion in 2009, and the majority stake was bought by investors led by Silver Lake and Andreessen Horowit, both private equity firms.
This includes shares that have been with eBay when it sold 70% to Silver Lake Partners. This means eBay makes $2.55 billion for the 30% left with it.
Apart from eBay, the other shareholders that are today selling all their shares to Microsoft are: Joltid Limited in Partnership with Europlay Capital Advisors, Andreessen Horowitz, and CPP Investment Board.
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Steve Ballmer, Microsoft chief executive said, “”Skype is a phenomenal service that is loved by millions of people around the world.” “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.”
Microsoft is shelling out $8.5 billion with the confidence that Skype is a great service that can be improved, and there is money to be made in the future. If Skype is attached to Windows 8, it can help Microsoft in the tablet market.