Microsoft Acquires Skype: Did They Overpay?

Microsoft announced the biggest acquisition in its 36-year history Tuesday morning, leaving tech analysts grappling with one question: Is the decision to drop $8.5 billion on the Internet communications company, Skype, a good call?

Right of the bat, Wired seemed a little down on the deal, arguing that while the purchase may seem "irresistible" just to keep Skype away from Google and Facebook, when you break it down, "The technology isn’t good enough and the users aren’t lucrative enough or plentiful enough to justify it."

But the deal could, in fact, be great for Facebook. According to Gigaom, Zuck and company had little chance of winning the bidding war, but because Facebook has Microsoft as an investor, the social network "gets access to Sykpe assets" and can keep it away from Google.

Still, $8.5 billion seems pretty steep, leading others to accuse Microsoft of bidding against itself. Just take a look at what the competitors offered, writes TechCrunch:

According to a source who claims knowledge of talks held between all parties, Google came in second at a price of $4B, while Microsoft will be paying $8.5B. This suggests that Redmond is paying significantly over the odds for Skype, although only time will tell if it turns out to be a smart deal. What is known is that had Microsoft been aware of the price that Google was willing to pay it almost certainly would have come in lower.

Of course, whether or not a deal is good tends to depend on which side of the agreement you're on. The Wall Street Journal reports that Andreessen Horowitz, the investment firm that purchased Skype for a measly $2 billion in 2009, "is taking a victory lap" now that it has sold its purchase and silenced the skeptics.

It's a sentiment that's been echoed across the web.

"There is one clear set of winners here," writes Mashable. "Skype's investors."

Comments

[jt1980]

01:24 PM on 05/11/2011

Microsoft is just too cash-rich. The idle cash hoard just sits there producing little, making it easy for the company to overpay for everything it wants to get. A billion dollars for the exclusive Windows Phone 7 deal with Nokia. $8.5 billion for Skype. The numbers just keep getting bigger.

[Comictrio]

12:00 AM on 05/11/2011

When you can't innovate, you imitate, when that fails, you buy what someone else develops. That is the hallmark of Microsoft's entire business.

[FreedToChoose]

10:16 PM on 05/10/2011

Overpay? Of course w.r.t. actual value. It's the norm in acquisition. Shareholders hold stock to gain value, not sell at an agreed equity. The buyer hopes that synergy enhances the premium paid.

[navalvet]

05:25 PM on 05/10/2011

By my computation, this deal costa about $1 from each share of common stock. At the end of the day Microsoft was down sixteen cents. It would seem that the market thinks they overpaid but not hugely.
Personally, I cannot see how Microsoft can make money from Skype without making it more expensive to use, nor can I see how this can add value to Office, should they bundle it.
Ebay and Meg Whitman dropped a bundle on Skype, thinking that it would add to their core business. What has changed?

[ramblingjohnny]

09:15 PM on 05/10/2011

It mainly a move to counter Facetime on the Iphone and GTalk on Android. Also Skype only lost 7 millions last year out of around 850 millions of revenue. Microsoft will likely cut cost way beyond that seven millions by just using their own servers, IT engineers and overall infrastructure! It also a feature that will make it way exclusively on every Xbox. Blocking both Nintendo and Sony from making deals with Skype is an added bonus.

[Querent]

04:35 PM on 05/10/2011

This is pretty funny. I bet the first thing Microsoft did was to shut down Skype's testing section. Wouldn't want anything going out the door with the Microsoft logo if it had been tested by real users first.

[bryanzth]

01:35 PM on 05/10/2011

Overpay? Nooo.... nooo, they will get that money back in stacks from the former happy Skype users...

BZ.

[vietjawn]

01:15 PM on 05/10/2011

in sports parlance -- Microsoft has become 'one-dimensional' threat.

[GrantRobertson]

12:13 PM on 05/10/2011

Microsoft's business strategy seems to be: Buy or steal someone else's laurels and then sit on them. The problem is: that just mashes the laurels.

[Chomsky Knows]

11:45 AM on 05/10/2011

Ebay certainly overpaid for it - oddest purchase in corporate history - Skype someone for that $2.99 Compact Disc you're gonna bid on...

[jt1980]

01:28 PM on 05/11/2011

But with this Microsoft purchase, eBay will escape the original deal with quite a profit. You have to give it to Marc Andreessen though. That guy has the Midas touch.