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Thread: Microsoft buys Skype.. $8.5 big ones!

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    Microsoft buys Skype.. $8.5 big ones!

    News Alert
    from The Wall Street Journal


    Microsoft Corp. announced a deal to buy Internet phone company Skype Technologies SA for $8.5 billion in cash—the most aggressive move yet by Microsoft to play in the increasingly converged worlds of communication, information and entertainment.

    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 Microsoft CEO Steve Ballmer.

    Buying Skype gives Microsoft a recognized brand name on the Internet at a time when it is struggling to get more traction in the consumer market. The deal ranks as the biggest acquisition in the 36-year history of Microsoft.

    Microsoft to Acquire Skype - WSJ.com
    Breaking...


    Huge deal!

    Tim-
    “When buying and selling are controlled by legislation, the first things to be bought and sold are legislators.” - P. J. O’Rourke
    “Socialism is great until you run out of someone elses money” Margaret Thatcher

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    Re: Microsoft buys Skype.. $8.5 big ones!

    Quote Originally Posted by Hicup View Post
    Breaking...


    Huge deal!

    Tim-
    Ugh oh. Hard to make a valuation on Skype.
    I hope they don't screw up the current model, if they do I'm sure someone else will come in and plug the hole.

    .
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    when you have NO MORAL COMPASS.

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    Re: Microsoft buys Skype.. $8.5 big ones!

    Quote Originally Posted by zimmer View Post
    Ugh oh. Hard to make a valuation on Skype.
    I hope they don't screw up the current model, if they do I'm sure someone else will come in and plug the hole.

    .
    cant screw it much more up than Ebay.. can only get better.
    PeteEU

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    Re: Microsoft buys Skype.. $8.5 big ones!

    Quote Originally Posted by PeteEU View Post
    cant screw it much more up than Ebay.. can only get better.
    Microsoft and the word better are not synonymous.
    “No men are anywhere, and I’m allowed to go in, because I’m the owner of the pageant and therefore I’m inspecting it,” Trump said... “‘Is everyone OK’? You know, they’re standing there with no clothes. ‘Is everybody OK?’ And you see these incredible looking women, and so I sort of get away with things like that.”

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    Re: Microsoft buys Skype.. $8.5 big ones!

    I doubt this will mean good things for Skype as a product. On the other hand, it might be useful having Microsoft financially interested in VOIP. They are strong enough to protect it from the inevitable attempt by Teleco's to crush their competition.

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    Re: Microsoft buys Skype.. $8.5 big ones!

    Quote Originally Posted by Middleground View Post
    Microsoft and the word better are not synonymous.
    Disagree. Microsoft is not the Microsoft of 20 years ago where the reputation you promote was created (and was justified). Their products are top quality now days. Windows 7 is the dominant OS, followed by Windows XP and they account for 89% of the market. Their office package is an industry standard. Their Xbox dominates the gaming console industry, especially after Sony's troubles, and with Kinect they have a product that is for the future.

    Ebay screwed up Skype big time.. so much that the inventors were forced to prohibit Ebay in using the base code which they still owned. This forced Ebay to sell it back to the inventors plus a venture capitalist group.. who are now selling at a big premium.

    I hope Microsoft can optimize the software, since after Ebay's meddling it is more bloatware than anything else. I also hope that Skype development will be more even-handed to the majority and not the minority in Apple. Skype under Ebay used lots of resources to get out products for Apple while shafting the rest of us.. On top of that they ****ed up the payment system outside the US at least. It went from very simple pay with credit-card to being forced to pay via 3rd party companies like Paypal and Moneybrokers.. some places you could not even pay with a bank transfer lol. Since Ebay was dumped then the good old methods came back ...

    So as I see it, with Microsoft, Skype will have access to not only a massive financial resource but also a massive technical base to improve the software.

    But this is a real threat to Apple. Apple has no VOIP system that can challenge both Google or Microsoft now. Their Facetime POS is "cool" but limited to .. Apple. Skype and Google Voice are cross platform and are popping up on everything from tablets to gaming consols to TVs to even fridges (yea Samsung made a fridge with Android in it, that supports Skype.. go figure).
    PeteEU

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    Re: Microsoft buys Skype.. $8.5 big ones!

    Quote Originally Posted by PeteEU View Post
    Disagree. Microsoft is not the Microsoft of 20 years ago where the reputation you promote was created (and was justified). Their products are top quality now days. Windows 7 is the dominant OS, followed by Windows XP and they account for 89% of the market. Their office package is an industry standard. Their Xbox dominates the gaming console industry, especially after Sony's troubles, and with Kinect they have a product that is for the future.

    Ebay screwed up Skype big time.. so much that the inventors were forced to prohibit Ebay in using the base code which they still owned. This forced Ebay to sell it back to the inventors plus a venture capitalist group.. who are now selling at a big premium.

    I hope Microsoft can optimize the software, since after Ebay's meddling it is more bloatware than anything else. I also hope that Skype development will be more even-handed to the majority and not the minority in Apple. Skype under Ebay used lots of resources to get out products for Apple while shafting the rest of us.. On top of that they ****ed up the payment system outside the US at least. It went from very simple pay with credit-card to being forced to pay via 3rd party companies like Paypal and Moneybrokers.. some places you could not even pay with a bank transfer lol. Since Ebay was dumped then the good old methods came back ...

    So as I see it, with Microsoft, Skype will have access to not only a massive financial resource but also a massive technical base to improve the software.

    But this is a real threat to Apple. Apple has no VOIP system that can challenge both Google or Microsoft now. Their Facetime POS is "cool" but limited to .. Apple. Skype and Google Voice are cross platform and are popping up on everything from tablets to gaming consols to TVs to even fridges (yea Samsung made a fridge with Android in it, that supports Skype.. go figure).
    Have to agree with their overseas payment models; they were convoluted.

    .
    The Clintons are what happens...
    when you have NO MORAL COMPASS.

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    Re: Microsoft buys Skype.. $8.5 big ones!

    Quote Originally Posted by zimmer View Post
    Have to agree with their overseas payment models; they were convoluted.

    .
    Hope it did not hurt
    PeteEU

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    Re: Microsoft buys Skype.. $8.5 big ones!

    It will be interesting to see how this deal works out, especially given the price Microsoft paid. Several challenges exist, among them are the following:

    1. Will Microsoft be able at least to cover the cost of capital involved in the acquisition?
    2. Can Microsoft monetize Skype's large customer base (663 million customers at last word) via cross-selling?
    3. Will the organizational cultures of the two entities be compatible?
    4. How will Microsoft's competitors, customers, and suppliers respond?

    Estimates I have seen for Microsoft's cost of capital range in the 3%-5% range. Hence, Skype would need to earn regular annual profits of $255 million to $400 million to cover Microsoft's cost of capital in the acquisition. If Microsoft invests even more money, then the earnings required to cover Microsoft's cost of capital would increase. Failure to achieve those earings--and they won't be achieved in the near-term--would tend to erode Microsoft's shareholder wealth.

    A closer look at Skype's recent financial situation reveals that in 2010, Skype generated revenue of about $1.30 per customer and expenses of $1.31 per customer. Somewhat more promising, each new customer in 2010 generated nearly $0.10 in profit. Skype's customer base grew 40% in the past year, but that rate of growth could slow in coming years. Still, if Skype can grow its customer base at 20% per year over the next few years, it would double its customer base in just under 4 years. Even if it doubles its customer base, it would need to find a way to increase its profit per customer, otherwise it would continue to fall short of generating the income required to cover Microsoft's cost of capital in the acquisition. Quite frankly, through at least the medium-term, that seems to be a difficult challenge.

    One way around that issue would be if Microsoft could find ways to monetize Skype's customer base (within or outside the Skype arrangement). That is a highly uncertain prospect. Furthermore, the Skype transaction creates areas of additional risk e.g., in theory Microsoft would be in a position to directly compete with some major customers (AT&T and Verizon), who were planning to incorporate Windows software in their mobile phones. If so, the competitive responses by AT&T and Verizon might offset some of the benefits that might otherwise accrue from the Skype acquisition. With mobile devices and tablets growing much faster than the PC/laptop market, decisions by AT&T and Verizon to forego windows software might well be costly in the long-term for Microsoft.

    The early read by the market was that Microsoft overpaid for Skype and that it won't be able to cover its cost of capital involved in the transaction. Hence, in the wake of the transaction's announcement, Microsoft's share price declined.

    Like the market, I'm skeptical of the overall net benefits of the deal. While I understand Microsoft's desire to try to diversify away from its core operating system business to try to reignite its growth and enhance its strategic flexibility, I believe it probably made the classic mistake of ignoring cost of capital, as happens so often in such transactions (the AOL-Time Warner deal was perhaps the most obvious with Time Warner having needed to generate more than $15 billion in annual profits to cover AOL's cost of capital in the transaction). I also suspect that Microsoft's expectations are far rosier than justified e.g., Microsoft sees the transaction as giving it an edge in generating income from corporate customers. Finally, given cultural differences between the two companies I suspect that allowing Skype to function as a largely autonomous entity would be preferable to incorporating Skype into Microsoft as a division.

    Finally, one saw a similar risk involved when Microsoft was actively considering acquiring Yahoo. Microsoft was willing to greatly overpay at the time, but failed to complete the transaction only because Yahoo sought an even higher price. In that case, a deal not made was the best deal Microsoft could have made. The Skype acquisition shows that Microsoft may have learned little from its Yahoo experience, as it significantly overpaid for Skype.

    In conclusion, I am not cheering this deal. Although I don't believe it will have a material impact in the overall marketplace, I don't believe it will benefit Microsoft's shareholders nor alter Microsoft's long-term trajectory as it faces the challenges of maturity in its core PC/laptop operating system business and is arguably behind in its quest to supply operating systems for the rapidly growing mobile devices/tablets industry.

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    Re: Microsoft buys Skype.. $8.5 big ones!

    Skype Technologies SA for $8.5 billion in cash
    In cash? That's 85 million $100 notes, or a stack 9.2 kilometres high.
    So follow me into the desert
    As desperate as you are
    Where the moon is glued to a picture of heaven
    And all the little pigs have God

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