Why Microsoft is Buying Skype for $8.5 Billion

Microsoft has bought Skype for $8.5 billion, in an all cash deal. The deal closed a few hours ago.. The Wall Street Journal confirmed the news after the announcement is likely to come out later today or tomorrow morning, according to several reports. Steve Ballmer, chief executive officer of Microsoft is said to be a big champion of the deal, the largest in the history of the company. Ballmer and Skype CEO Tony Bates will host a press conference in a few hours.

SKYPE CEO Tony Bates

 

It won’t surprise me if Microsoft comes in for major heat on this decision to buy Skype — and the software company could always botch this purchase, as it often does when it buys a company. The Skype team is also full of hired guns who are likely to move on to the next opportunity rather than dealing with the famed Microsoft bureaucracy.

I also don’t believe that Facebook and Google were serious buyers. Google, with its Google Voice offering, doesn’t really need Skype. In essence, I feel that 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.
• It gives Microsoft a working relationship with carriers, many of them looking to partner with Skype as they start to transition to LTE-based networks.
• It would give them a must-have application/service that can help with the adoption of the future versions of Windows Mobile operating system.
• 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.

Why Did Skype Want To Sell?

Skype had filed for an IPO and was going to do about a billion dollars in revenues and was on its way to becoming profitable. So why sell? Silver Lake and eBay were both getting impatient and wanted to lock in their profits. Some sources also believe that Skype’s revenues had stalled.

The company had bet heavily on is video sharing service. The premium version of video calling and sharing was a way for Skype to increase its average revenue per user and move into the enterprise market. However, given Skype’s DNA is that of a consumer Internet company, the challenges are not a surprise.

founders of SKYPE

 

 

 

 

So Who Made What?

• Using the $8.5 billion price as the likely sale price, eBay gets $2.55 billion for its 30 percent stake in Skype. So in the end, eBay did make money on the Skype deal.

  Niklas Zennström and Janus Friis, the co-founders with their 14-percent stake, take home about $1.19 billion. Damn, these guys know how to double dip!

• Silver Lake, Andreessen Horowitz and the Canada Pension Plan Investment Board (CPPIB) own 56 percent of the company and that stake is worth $4.76 billion.
• Andreessen Horowitz had 3 percent of the deal and made $205 million profit on their $50 million initial investment.