Tuesday, May 10th 2011
Microsoft to Acquire Skype for Over $8 billion
In what is turning out to be the mother of all tech acquisitions, Microsoft is working towards acquiring IP telephony giant Skype Technologies for nearly US $8 billion, the deal could be announced later today, according to the Wall Street Journal. The Skype acquisition will give Microsoft increased traction in the consumer market, as part of the company's efforts to provide more web-based convergence services. The deal could be the most significant development after Bing, a polished successor of MSN Search.
Skype is the company that propagated web-based telephony, which threatened to make conventional telephony obsolete. Founded in 2003, the company has 663 million registered users, including 8.8 million with paid accounts. In 2005, it was sold to Ebay for $2.6 billion, after which Ebay sold 70% of its shares to private investors by 2009. Microsoft is in the foray to acquire the company and its debt in a deal that can see up to $8.5 billion changing hands.
Source:
Wall Street Journal
Skype is the company that propagated web-based telephony, which threatened to make conventional telephony obsolete. Founded in 2003, the company has 663 million registered users, including 8.8 million with paid accounts. In 2005, it was sold to Ebay for $2.6 billion, after which Ebay sold 70% of its shares to private investors by 2009. Microsoft is in the foray to acquire the company and its debt in a deal that can see up to $8.5 billion changing hands.
39 Comments on Microsoft to Acquire Skype for Over $8 billion
Brand and "...the company has 663 million registered users, including 8.8 million with paid accounts."
Then a week later M$ announces. "We're raising fees on XBL again. We feel it is still a bargain to consumers because they get so much more now for their Gold membership."
IMHO, Skype would have worked well with Facebook.
Why M$, Y U NO FAIR?
- That's not taking into account the incredible growth rate that Skype has seen in the last 5 years (around +20% each year), which will only continue to grow, more so under Microsoft's hood.
- That's not taking into account the potential pay-for-use revenue derivated from those 660 million registered users. Just think that for every $1 spent on average, we'd be talking about $660 million revenue increase at the end of the year.
I'm very well aware that my numbers are way off from the real revenue numbers that Skype has seen, and that Skype has been losing money for the most part, but there's a lot of potential for a company like Microsoft to attain good revenue from Skype. Skype has not been able to extract anything close to $1 average per user, IMO M$ (or Facebook) easily could. Also overlapping resources and infraestructures should massively reduce operating costs and make Skype pay for itself in say 5-10 years. Again that's only based on current growth, without taking into account that Skype could boom under M$ hands.
All things considered, Skype surely looks like a much much better deal for M$, than Youtube was for Google or Ati was for AMD.
I don't think you'll see much happen to Skype after the acquisition other than Microsoft integrating the tech into their existing services, and possibly integrating it into Windows itself.
Who pays $8.5B for a company with only a little over 1/2 billion in annual revenue and is reporting a net loss?
Something is odd here.
I would not put it past MS to kill the free offerings and require a small subscription fee to use the service at all.
Anyway, like I said, I don't think it's so much about the actual revenue of Skype as it is now, but as how could it be, the potential within it. Belonging to M$ I can only see the user base and awareness factor growing a lot and that would increase revenue by a lot. There's two things that can increase revenue by 3x-4x easily, one is the user base and the next one is the revenue per user, both of which IMO can be much higher belonging to M$ (confidence would be higher for instance, IMO). Look at the link I provided, it looks like Skype could only extract $0.2 per user, for the whole 2010 year! If only M$ manages 2x, 3x that ammount either by increasing the user base, increasing the rate at which users use the paid service or by deals with partners like increasing Skype use in big enterprises, etc, they would be at least doubling revenue. I think they can easily pull that off.
Regarding profits, and hence the net loss that you talked about, IMO that part doesn't matter either. Most of that loss comes obviously from immense operating costs and I'm sure that Microsoft could handle it much better, maybe they don't even have to change/improve anything in order to include Skype's traffic inside their already massive network.
So if say by 2013-2014 they can improve revenues by 200% (I could even imagine a 500% increase only based on product awareness) and lower costs to $250-ish that's some great revenues they'd have right there.
There's one last factor, they'd be operating in and controlling a market that could otherwise become a nightmare for them, a really tought competitor down the line if say Facebook or Google ended up buying it (i.e. Android with Skype integration). Something like Skype could or could not be the future of voiced communications, but it's just better to have that service covered just in case and buying the one with the brand name and the highest user base is simply better that trying to compete with it.
However, they may have a plan (with W8 getting closer) to integrate skype within some of their platforms (XBL,Office,Windows (except Windows Phone is questionable because carriers might lose revenue because of that),GFWL). Also they might be trying to keep others from getting hands on Skype (like Google, for example).This already went through...