Microsoft buys Skype.. $8.5 big ones!

[Hicup]

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-

 

[zimmer]

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.

.

 

[PeteEU]

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.

 

[Middleground]

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

Microsoft and the word better are not synonymous.

 

[rathi]

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.

 

[PeteEU]

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).

 

[zimmer]

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.

.

 

[PeteEU]

Have to agree with their overseas payment models; they were convoluted.

.

Hope it did not hurt

 

[donsutherland1]

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.

 

[spud_meister]

Skype Technologies SA for $8.5 billion in cash

In cash? That's 85 million $100 notes, or a stack 9.2 kilometres high.

 

[kaya'08]

Let's see how Kinect merges this with their XBox network and Kinect. Should be pretty awesome. They are pretty much raping Sony anyway.

In cash? That's 85 million $100 notes, or a stack 9.2 kilometres high.

You would know that i assume from just measuring your own stash.

Microsoft and the word better are not synonymous.

I have to completely disagree, i can name many things now. There is no doubt their OS's have their faults, but they still remain the most commercial and mainstream computer digital mediums out their. The technology in Windows and the way it delivers it's experience is quiet simply one of the best models on the market. Linux requires a fairly tech savy mind to maintain and utilize fully (although the new Ubuntu - wow!) and Apple just hasn't appealed to commercial developers as much for numerous reasons.

Also, the introduction of .NET programming languages and the Visual Studio IDE has in my opinion revolutionized the way we program, DirectX is unrivalled in its ability to deliver powerful gaming experiences and the XBox has (and this hurts to say for a PS fan boy like me) outrun Sony. I can only assume the coming generation of XBox will be even better.

Also their Office suits are unmatched in the way you can create stunning documents, databases and spreadsheets, even if you compare it with free alternatives like Open Office.

But Windows Phone will never compete fully with open source alternatives like the Android although it has the potential to beat iOS, Bing is a disaster and so was Vista and IE just looks pretty, the bonnet remains unchanged.

 

[Your Star]

The Xbox Live chat just got a whole lot better.

 

[spud_meister]

You would know that i assume from just measuring your own stash.

:lol: Of course, though it used to be 12km's high, but I had to spend 2.8km's on a tape measure big enough to measure it.

 

[PeteEU]

Let's see how Kinect merges this with their XBox network and Kinect. Should be pretty awesome. They are pretty much raping Sony anyway.

Well to be fair, Sony had "help" in getting raped with its security problems. Playstation is a great machine and a great piece of software and so on. But the hacker attack has paralysed the whole network, including PC users.. sniff miss my Everquest wahhhhh. Hope they can get it online again soon.

XBox has one huge flaw, and that there is no blu-ray in it , where as Playstation does have blu-ray but is not as "cool" as Xbox heh.. I dont own either but when the next gen comes out, then we shall see... I would love and Xbox with Kinect, but no BLU-RAY!!!.. pisses me off. But I suspect Kinect for windows will be just as good so waiting for that... I want to motion swipe my web browsing and gaming hihihi.

I have to completely disagree, i can name many things now. There is no doubt their OS's have their faults, but they still remain the most commercial and mainstream computer digital mediums out their. The technology in Windows and the way it delivers it's experience is quiet simply one of the best models on the market.

Qui, Yes, Si, Da, Aye, you betcha and so on.

Linux requires a fairly tech savy mind to maintain and utilize fully (although the new Ubuntu - wow!)

Yea! The new Ubuntu is great, but I cant for some reason get it to work with my dual screens.. booooooooo.. deal breaker here. I get the same desktop on both, and not one continuous one like in Windows 7. But it does find my wifi printer which is good.

and Apple just hasn't appealed to commercial developers as much for numerous reasons.

Or users Expensive hardware/software combo that has limited commerical software and next to no games plus a company that has a crappy service record. But it looks nice!

But Windows Phone will never compete fully with open source alternatives like the Android although it has the potential to beat iOS

We shall see. Windows Phone 7 is still relatively new and who knows how open Microsoft will be now that they partnered with Nokia. But yes, Microsoft's Windows Phone 7 main target has to be Apple, and unless Apple gets its act together and upgrades its outdated old iOS then it can be in trouble. Microsoft on the other hand needs to fix Windows Phone 7's main problems.. it wont be a serious contender before that. I have played with a Windows Phone 7 phone and damn it is cool.. love the live widgets, xbox access and all that jazz.

Bing is a disaster

Not really. Bing is different and in many ways better than Google search. But people are use to Google now hehe so.

and so was Vista

Vista was Microsoft's attempt to "Applefy" their OS on the security level if you ask me. For years we had heard that Windows Xp was so unsecure and only Apple or Linux were secure bla bla .. so Microsoft took that up and welcome to Vista.. problem was that to make it as secure as other OSs, then they needed to emulate them as well.. so the user experience went down because of the way the Windows universe is. In Apple everything is controlled and approved.. you cant install anything that has not been past Apple.. at least install legally. In linux for the "normal user" you get your programs from pre-approved sources so the security issues are already determined. With Windows Vista, Microsoft has very little (relatively) control over 3rd party programs so they all come in under the category "unsecure" and need administrative privileges or permission to install/run... and that hurts the user experience.

But then Windows 7 came.... thank god. Similar security but much more user friendly.

and IE just looks pretty, the bonnet remains unchanged.

Actually they have changed much.. problem is.. they are trying too much. The good thing about Firefox and especially Google Chrome.. they are simple, easy and feel "light". IE, Safari, Opera and so on.. all feel like 3 ton elephants. But the new IE is fast.. very fast, just annoying in certain aspects for my taste.. Google Chrome ftw.... Google just has to fix the Shockwave Flash bug to make it perfect.

 

[kaya'08]

Well to be fair, Sony had "help" in getting raped with its security problems. Playstation is a great machine and a great piece of software and so on. But the hacker attack has paralysed the whole network, including PC users.. sniff miss my Everquest wahhhhh. Hope they can get it online again soon.

I hope so too Pete. Fact is the PlayStation has a lot more built in potential to surpass the XBox, but the PS3 has been plagued with Sony's errors since it's launch and that has had a significant impact on them. That's the tragedy of it all.

XBox has one huge flaw, and that there is no blu-ray in it , where as Playstation does have blu-ray but is not as "cool" as Xbox heh.. I dont own either but when the next gen comes out, then we shall see... I would love and Xbox with Kinect, but no BLU-RAY!!!.. pisses me off. But I suspect Kinect for windows will be just as good so waiting for that... I want to motion swipe my web browsing and gaming hihihi.

Yes that would be awesome, Minority Report style UI swishing. I'm going to be such a show off when i get my hands on that. This does bring me back to my point though, the next XBox will only get better and you can be sure to see Blu-Ray, it's why Sony has to get its act together and fast. I'm also dying to hear what the next Nintendo console will be like but they are being very secretive about it. We may be surprised.

Yea! The new Ubuntu is great, but I cant for some reason get it to work with my dual screens.. booooooooo.. deal breaker here. I get the same desktop on both, and not one continuous one like in Windows 7. But it does find my wifi printer which is good.

Do you have NVidia?

We shall see. Windows Phone 7 is still relatively new and who knows how open Microsoft will be now that they partnered with Nokia. But yes, Microsoft's Windows Phone 7 main target has to be Apple, and unless Apple gets its act together and upgrades its outdated old iOS then it can be in trouble. Microsoft on the other hand needs to fix Windows Phone 7's main problems.. it wont be a serious contender before that. I have played with a Windows Phone 7 phone and damn it is cool.. love the live widgets, xbox access and all that jazz.

I love it too, but closed source is Microsoft's weakness and its where Google gains. Apple rules its App Store with an iron first and for a company that is known to make cool interfaces, the iOS lacks. If Microsoft can utilize the new trigate chips that Intel has made and deliver the full DirectX experience (and open up a little!) then Apple is in for a wooping.

By the way you gotta check out Windows 8!

Vista was Microsoft's attempt to "Applefy" their OS on the security level if you ask me. For years we had heard that Windows Xp was so unsecure and only Apple or Linux were secure bla bla .. so Microsoft took that up and welcome to Vista.. problem was that to make it as secure as other OSs, then they needed to emulate them as well.. so the user experience went down because of the way the Windows universe is. In Apple everything is controlled and approved.. you cant install anything that has not been past Apple.. at least install legally. In linux for the "normal user" you get your programs from pre-approved sources so the security issues are already determined. With Windows Vista, Microsoft has very little (relatively) control over 3rd party programs so they all come in under the category "unsecure" and need administrative privileges or permission to install/run... and that hurts the user experience.

I think keeping the platform open to developers is important and that's exactly what Windows does best. In Linux the repo sources work well and it's a mix between being able to download Linux installation files directly off the web (.deb files so on) and being able to add Repository sources to your app store and have easy access to software, but the process still needs to be refined because this is mind boggling for many people. Ubuntu is proving to be a major competitor though and the need to use the terminal has reduced and this is good news for your non-tech savvy's.

Another problem with Linux is porting and developing software. The IDE's available out there are finding it hard to compete with Visual Studio and other Windows platforms and Mono is the only real competitor, and the methods to build a user interface or a simple setup application are needlessly complicated and that affects user experience (asking users to compile their own applications or telling them to add a repo source every time they download software is annoying and some people just cant do it).

Also Linux is pretty useless to you if you are a .NET or Silverlight programmer although Mono will likely address these issues soon, but i would like to see more native Windows languages on Linux.

Actually they have changed much.. problem is.. they are trying too much. The good thing about Firefox and especially Google Chrome.. they are simple, easy and feel "light". IE, Safari, Opera and so on.. all feel like 3 ton elephants. But the new IE is fast.. very fast, just annoying in certain aspects for my taste.. Google Chrome ftw.... Google just has to fix the Shockwave Flash bug to make it perfect.

I admit that my observation was unfair in the way of IE. To put it better, it looks aesthetically lighter but i still experience performance issues with it and it sucks so much how closely Windows is tied to it.