US$50. That’s how much Microsoft is paying for every active user of Skype. The software giant on Tuesday said it would pay $8,5bn to buy the popular Internet communications company from an investor group led by Silver Lake.
The deal has the approval of both companies’ boards, though it is still be subject to regulatory approval.
Microsoft says Skype had 170m connected users and carried more than 207bn minutes of voice and video conversations in 2010. It wants to integrate the service on devices such as the Xbox 360 and Kinect gaming platforms, Windows Phone and a “wide array of Windows devices”. It will also connect the telephony service to Lync (formerly Communicator), Outlook and Xbox Live.
“Skype is a phenomenal service that is loved by millions of people around the world,” Microsoft CEO Steve Ballmer says in a statement.
Skype will become a new business division in Microsoft, and Skype CEO Tony Bates will assume the title of president of the Microsoft Skype Division, reporting directly to Ballmer.
Skype was founded in 2003 and acquired by eBay two years later. It was bought by a consortium led by Silver Lake, an investment firm, in 2009. This is the largest deal financially in Microsoft’s 36-year history.
According to The Wall Street Journal, Microsoft’s move could see it effectively competing in the converged communications space against the likes of Google and Apple, which have been squeezing its margins in recent years.
Skype has been for sale for some time, and the company pulled the plug on plans to list earlier this year in anticipation of a sale. Companies such as Google, Cisco and Facebook have all been rumoured to be in the running to buy it.
Mark Walker, director of the vertical industry practice in Africa and the Middle East for analyst firm IDC, says Microsoft has never really had a solid play in the converged communications space.
“Microsoft was late to market in the mobile communications space, late to market with instant messaging and SMS. They missed the boat on the converged space,” he says.
Walker says the purchase of Skype could prove to be a good one for Microsoft. “It’s a good play into the consumer market that could complement the company’s deal with Nokia,” he says.
Microsoft and Nokia last month announced a partnership that would result in Windows Phone 7 being used on the latter’s smartphones. Although Windows Phone 7 has been well received by reviewers, it has not yet gained any meaningful market share. Integration of Skype on the platform could help change that.
However, The Wall Street Journal points out that integrating Skype on mobiles could alienate mobile operators, which won’t be enamoured of the idea of the service eating into their voice revenues.
Microsoft’s other opportunity is in the business market, where the company is still strong. “Skype is an incredible business tool. With its application collaboration and sharing system, combined with voice, it is a powerful service,” says Walker.
However, Walker is concerned about how Microsoft will maintain or grow Skype’s value proposition. “If it doesn’t make money, it doesn’t survive. That’s the Microsoft way,” he says. — Candice Jones, TechCentral
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