In The Microsoft-Skype Deal, Analysts Divided Over How Facebook Will Fare

On the morning that Microsoft announced its decision to spend $8.5 billion acquiring the voice and video online calling company Skype, questions abounded about how the deal would affect Facebook since, just last week, the social networking site was rumored to be in talks for a similar acquisition.

According to a Reuters report, sources at Facebook claimed that CEO Mark Zuckerberg was in discussion with Skype and considering purchasing the company for between $3 billion and $4 billion or forming a joint venture. (Google was also reportedly in talks with Skype, according to Reuters). So did the computing giant snatch Skype out of the social networking site's eager hands? Wired Magazine wrote that, for Microsoft at least, "the prospect of keeping [Skype] out of reach of Google and Facebook may just make the purchase irresistible."

Analysts are at odds over what the acquisition will mean for Facebook, with some arguing that it may have lost its chance to snap up a valuable service.

"This will set Facebook back a fair bit. If they want to accomplish [voice and video integration] by organic development it will take them an awful lot of time," said Leif-Olof Wallin, research vice-president at Gartner, an information technology research firm. "I think Facebook would have gotten an awful lot of value from aquiring Skype, but I'm not sure they have the financial muscle to do it."

But some analysts counter that Facebook could actually be the big winner in this transaction, given the company's close ties with Microsoft. Microsoft invested $240 million in the Palo Alto company back in 2007, an investment that could be worth over $800 million today. In 2010, the two companies announced that they would be joining forces in social search, with Microsoft using Facebook's social data in its search engine, Bing. Facebook also has previously demonstrated its interest in Skype: the social network began encouraging users to connect via Skype to find contacts last summer, and GigaOM reports that a joint announcement between Skype and Facebook is expected shortly.

Analysts suggest that given the companies' history and mutual interests, the two could potentially work together to find applications for Skype.

"For Facebook this is quite a good outcome, because Facebook now doesn't have to end up dealing with this massive complexity of actually making phone calls sound good," said analyst Dean Bubley. Facebook, Bubley notes, "doesn’t want (I think) to be a phone company, especially if the value of phone calls is falling."

Even if Microsoft and Facebook don't end up working together, some experts argue that the affect on Facebook is essentially neutral.

"It's not like this acquisition is going to make Facebook less valuable to their more than five hundred million users," said Josh Martin, a senior analyst at Strategy Analytics. "It would have added extra value to the service but are they damaged by the deal? Not even a little bit."

Comments

[UtahSlim]

02:40 PM on 05/11/2011

Typical monopolistic behavior. Stifle competition and innovation by virtue of your size. It's pathetic that transactions like this are so regular that regulators think it is OK. Microsoft, Google Cisco, Intel, etc, by virtue of their size alone, should be prohibited from making any aquisitions.

[Teknisyan]

03:21 AM on 05/11/2011

Sounds like microsoft just acquire Skype for Facebook or Microsoft could be trying to position themselves to acquire Facebook!! :)

[Jill Kennedy]

12:55 AM on 05/11/2011

Don't have the financial muscle - aren't they worth $100 billion (soon to be worth $1 trillion)???? I personally think Facebook is well on its way to becoming worthless...

http://mankabros.com/blogs/onmedea/2010/07/01/facebook-is-worthless/

[mongpong]

10:18 AM on 05/12/2011

Jill Kennedy - I read your blog - and i have to seriously disagree with you. I will certainly say that Facebook is probably not worth the figures thrown around by tech media (yet!) but it's most certainly not worthless, in fact it's very much far from it. You seem to mainly cover the fact that the service is free and note that they could only earn money by charging people to use the site in the future.

I doubt they will ever charge people to use Facebook ever as their money comes from micro payments that they recieve off advert clicks which are clicked millions of times a day (I don't think people care as much as you think about these adverts as long as they keep the service free), implementing new multimedia services into their framework (e,g, the new Facebook Movie rental service in conjunction with Universal Pictures etc) as well as likely implementing Skype into their service shortly as Microsfot has some serious cash invested into Facebook and know that sharing their new purchase with a database of 500 million new potential customers is beneficial to them beyond anything they can tap into.

Basically you're stating that all websites that are free to the user are essentially worthless which includes Skype (for Skype to Skype calls), Huffington Post (and the majority of online newspapers), Google and millions of other sites which revenue reports seem to state are the opposite of worthless and in fact make billions of

[rbryanh]

07:38 PM on 05/10/2011

Microsoft has a long, spectacular history of doomed buyouts. Like George W. and Donald Dump, the clueless billionaires in Redmond have never met a company they couldn't ruin.

They still offers excellent development tools, but beyond that... When was the last time MS released a product that wasn't DOA, a bigger, less elegant copy of something conceived elsewhere, or (usually) both?

The company is dead, but like the dinosaur it is, will take an astounding amount of time to rot.

[Jill Kennedy]

12:56 AM on 05/11/2011

I actually think it's Facebook that is doomed.

http://mankabros.com/blogs/onmedea/2010/07/01/facebook-is-worthless/

[rbryanh]

02:40 AM on 05/11/2011

Given that I've never looked at Facebook despite being a 30-year career geek and spending at least half my waking hours working in virtual environments, I'd certainly agree that it's worthless to me. Other people seem to live for it, but then they also live to shop.

The fact that there are fewer than 25 other people on earth whose company I actually enjoy might also have something to do with my disinclination to mingle. And then there's my tendency to confine narcissistically babbling about myself to occasions where others would have to abandon food and drink to escape my obsession with my cat, who is at least 5 of the people I actually like.

Facebook and its ilk strike me as the recursively self-referential artifacts of commerce-as-identity. The sites themselves are essentially ads which advertise advertising. Socially, they're all hype. Economically, they're a pyramid scheme.

[Jack Daniels Esq]

07:31 AM on 05/11/2011

Facebook ?? Remind me - who was that again .....?

[icecreamingmeme]

06:35 PM on 05/10/2011

How will they FARE.