Microsoft Buys Skype For $8.5 Billion (VIDEO)

NEW YORK -- Microsoft Corp. said Tuesday that it has agreed to buy the popular Internet telephone service Skype SA for $8.5 billion in the biggest deal in the software maker's 36-year history.

Buying Skype gives Microsoft access to a user base of about 170 million people who log in to Skype every month, using the Internet and Skype usernames as a complement to the traditional phone network and its phone numbers.

Microsoft said it will marry Skype's functions to its Xbox game console, Outlook email program and Windows smartphones. All of these platforms already have other options for Internet calling, but the addition of Skype users would expand their reach, making them more useful.

Microsoft said it will continue to support Skype on other software platforms.

The sellers include eBay Inc. and private equity firms Silver Lake and Andreessen Horowitz.

Skype users made 207 billion minutes of voice and video calls last year. Most of that usage is free calling from computer to computer, which has made it difficult for the service to make money since entrepreneurs Niklas Zennstrom and Janus Friis started the company in 2003. An average of about 8.8 million customers per month, or just over 5 percent of the user base, pay to use Skype to call out to the regular phone network.

The vast majority of paying Skype users is in Europe, where high country-to-country rates for traditional phone calls make Skype more popular than in the U.S., where state-to-state calling is cheap.

Skype is the largest provider of international calling services in the world, surpassing any single phone company, according to research firm TeleGeography.

Skype lost $7 million on revenue of $860 million last year, according to papers that the company has filed since announcing its intentions last summer to launch an initial public offering of stock. The IPO was later put on hold. Skype's long-term debt, net of cash, was $544 million at the end of 2010.

The Skype takeover tops Microsoft's biggest previous acquisition - a $6 billion purchase of the online ad service aQuantive in 2007.

Microsoft said Skype will become a new business division headed by Skype CEO Tony Bates, who will report directly to Microsoft CEO Steve Ballmer.

Although it makes billions from its computer software, Microsoft has been accustomed to losing money on the Internet in a mostly futile attempt to catch up to Google Inc. in the lucrative online search market. Microsoft got so desperate that it made a $47.5 billion bid to buy Yahoo Inc. three years ago, but withdrew the offer after Yahoo balked. Yahoo is now worth about half of what Microsoft offered.

Microsoft can well afford to buy Skype: On March 31, it had a cash hoard of $50.2 billion.

Microsoft would be Skype's second large-company owner. EBay bought Skype for $2.6 billion in 2005, but its attempt to unite the phone service with its online shopping bazaar never worked out. It wound up selling a 70 percent stake in Skype to a group of investors led by private equity firms Silver Lake and Andreessen Horowitz for $2 billion 18 months ago.

Besides eBay, Silver Lake and Andreessen Horowitz, Skype's other major shareholders are Joltid and Canada Pension Plan Investment Board.

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Peter Svensson can be reached at http://twitter.com/petersvensson

Comments

[Hesca419]

08:29 PM on 05/12/2011

I'm just gonna go out on a limb and say no. MS has proven it doesn't really know much about anything. I'll miss you, Skype, but I'm pretty sure you'll be too frustrating for me to use in six months. Too bad.

[macewan]

06:05 AM on 05/12/2011

Microsoft will end up pissing us by requiring we open Live account to us Skype. Like Yahoo! did with Flickr.

[Darth Cheney]

01:56 PM on 05/12/2011

I hope they do. What, you like having to open a new account and remember a new password with every single product you use on the intarwebs? I'm sick of it.

[PenguinLinux]

05:28 PM on 05/12/2011

Thank you for making it easier for hackers. You probably have an easily guess password too.

[raymondcohen]

09:59 PM on 05/11/2011

What I don't understand is how Microsoft plans on turning their investment into a profit. Skype lost $7 million and posted $860 million in revenue. Even if they completely flip Skype and post $850 million as profit per year it would take ten years to see a dime of ROI.

[Darth Cheney]

02:00 PM on 05/12/2011

The point of Skype, WP7, Bing, Live services, cloud apps, hotmail and all that is to drive ad marketshare. Once you can get enough eyes then advertisers will consider you instead of Google (Google is dominant in search but bordering on monopoly for advertising).

[jsr38401]

06:08 PM on 05/18/2011

I think the only real advantage would be for windows mobile devices, I work for at&t and i can not tell you how many customers I have that ask for a phone that can actually support skype...Android phones haven't perfected their facetime apps, and Iphones suck because you have to be on wifi to even use their facetime app, so I think this will give Windows phones just a slight edge in that arena, now if they can just make the darn things where you can download customizable ring tones and use your own sd cards lol

[firelord5000]

09:56 PM on 05/11/2011

If it starts with S, and ends with X, then yes.

[Dieter Zerressen]

09:30 PM on 05/11/2011

Nobody cares.

[jflorish]

06:19 PM on 05/11/2011

Kinect was a great idea by Microsoft, but other then that it's been few and far between these past 7 years or so.

[CKMJr]

05:59 PM on 05/11/2011

since they seem to be on an innovative drought lately, why not just buy other companies?

[mojo filter]

04:06 PM on 05/11/2011

Microsoft just isn't a very creative company. Everything they put out is just a retread of what other companies are doing. It works with Windows because PCs are so much cheaper then Apple computers, but with their phones and MP3 players and what have you, there really isn't a good reason to switch to Microsoft. The one exception has been the X Box 360, but they actually did innovate in that case with their X Box Live service.

[JosephTX]

09:40 PM on 05/11/2011

Microsoft only SEEMS less creative right now because most of their big innovations happened in the recent past (i.e. what made them so popular that they got 95% of the OS market). Just look at C#. Microsoft made, from scratch, a programming language that's fully integrated with their .NET framework (another recent creation) and is already one of the most-used languages in the world despite being brand new.

To the average user, though, they might seem less creative because most of their recent innovations have been for business utilities rather than shiny interfaces (which is really all Apple's ever contributed: something you could just as equally claim is rehashed from Microsoft's original Windows GUI). They may have taken a hint from Apple's recent success by making Windows Vista and Windows 7 more shiny, but that's hardly indicative of a lack of creativity.

[Thomas Junck]

01:05 AM on 05/13/2011

Check your history, M$ stole the design for windows from the Macintosh Prototype under the guise of wanting to develop for the platform. it was "Hey we can help you, we can make killer software for your new OS" then they reverse engineered Mac OS in an attempt to make a Microsoft branded OS (windows) and then cut deals with OEMs to release Windows on all new computers. A similar trend has happened with Google. They got in tight with apple, and when apple developed the iPhone google started developing the Android OS and the Google G1 (and other future) smart Phones which like windows was a less elegant, less polished iPhone ripoff. Apple innovates , then other companies attempt to ride their success. But these days is is frowned on to pull that OEM deal nonsense that Microsoft pulled in the 80's.

[Darth Cheney]

02:05 PM on 05/12/2011

No, people are blinded by hatred generated during the monopoly stuff in the 90s. MS is actually very creative an innovative. Case in point: Technology wise Skype is laughable compared to what MS has been doing in the Unified Communications space. Problem is that common people don't hear about it. BTW I actually did switch mp3 players. The Zune software, service, and devices are unmatched. Again though...nobody knows this or even bothers to find out.

[mojo filter]

03:37 PM on 05/12/2011

When it comes to the more technical side of things, that might be true. I'm not a programmer or anything. When it comes to consumer products though, I think I'm right.

As far as the Zune goes, it did get a lot better with the latest gen. It's also cheaper then the iPod now, but it might be too late (I heard it got canceled? too bad). The Zune store never could touch the Apple store. MS also tried to go a proprietary route with their store like Apple did, which was a huge mistake.

[Diego Suarez Regalado]

03:34 PM on 05/11/2011

Microsoft has bought Skype for $8.5 billion, in an all-cash deal.

I belive Google, doesn’t really need Skype. In essence, I feel Microsoft was bidding against itself. Even then, I personally think this is a bet worth taking, especially for a company that has been left out in the cold for so long.

Skype gives Microsoft a boost in the enterprise collaboration market, thanks to Skype’s voice, video and sharing capabilities, especially when competing with Cisco and Google.

However, the biggest reason for Microsoft to buy Skype is Windows Phone 7 (Mobile OS) and Nokia. The software giant needs a competitive offering to Google Voice and Apple’s emerging communication platform, Facetime.

[DRaymond]

03:15 PM on 05/11/2011

The money in Skype isn't just in connecting Voip calls for free, it is getting them to sign up for the extended PBX like service like voice mail, forwarding, conferencing and whatever.  If Microsoft is going to make this into something big the vision needs to be the global cloud-based PBX that everybody belongs to.   It should be that if you see a phone number anywhere in an application...in Word, Excel, Outlook, Facebook, or whatever you are no further away than a click from calling them with full executive class video-conference and PBX features.  Your kinect not only serves as your own personal videoconference room but also you can with a swish of your hand review, edit, and respond to your voice/video mail and it is the same voice/video mail inbox as when you are dealing with your phone, your computer, your laptop, or your tablet as it is all coordinated through the cloud-based PBX.

http://betweenthenumbers.net/2011/05/how-to-make-skype-worth-8-5-billion-dollars/

[DRaymond]

03:03 PM on 05/11/2011

Microsoft has experience in large message stores with Exchange and knows how to provide software based PBX services with Linc Server.

[Trilby]

01:45 PM on 05/11/2011

"Microsoft said it will marry Skype's functions to its Xbox game console, Outlook email program and Windows smartphones. All of these platforms already have other options for Internet calling, but the addition of Skype users would expand their reach, making them more useful."

Do people really like all that togetherness? Apps and devices bundled (or jumbled) together? I don't.

[DRaymond]

02:29 PM on 05/11/2011

If people didn't like apps and devices bundled together Apple would have gone out of business decades ago.

[Trilby]

03:26 PM on 05/11/2011

You're right. I guess it's just me.

[cynicalmatt]

01:40 PM on 05/11/2011

I wish Microsoft would discontinue windows.

[roveache]

06:30 PM on 05/11/2011

Huh? It works well, is a much more open platform than Apple has, which means it supports FAR more hardware and software...

[NoElephants]

09:18 PM on 05/11/2011

Sure does, supports far more inferior hardware and software.

[cynicalmatt]

11:46 AM on 05/16/2011

Trust me I know everything about windows. I used to be a PC only guy. I use windows at work everyday & hate it. It's just a cumbersome OS to me. I find the mac OS to be more natural & logical. I'm not a Microsoft hater, I think they did a perfect job with Xbox360. As far as open systems, I don't like them. I like standards. That's why I play console games as opposed to computer games. Everyone is on the same playing field.

[CrookWatch]

12:37 PM on 05/11/2011

Corporations only exploit the masses for money not for what their customers want. Once in a while there is a convergence. Capitalism is the least likely way to make the best possible product.

[Winski]

12:21 PM on 05/11/2011

You, the media in all it's amazing delivery forms and morphs still gets this question wrong every time it's asked... "Does Nokiasoft finally understand what customers want" isn't really the question that should be out there..it's old and boring and you've gotten the same answer for 30 years.. The REAL question, the media should finally be asking is "Do you know that Nokiasoft STILL doesn't give a crap what you, the customer, wants and is trying to band-aide over their market mistakes at your expense" ??

See how different your results are behind the REALITY of that question???