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Microsoft Skype Marriage Is All About Communication
By buying Skype, Microsoft is putting its huge pile of cash to work grabbing both 135 million customers and a ton of key technology.
By Dan Costa
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Microsoft's proposed $8.5 billion purchase of Skype has met with the predictable skepticism. After all, it wasn't that long ago that eBay was throwing down billions of dollars for the VoIP pioneer only to let it sit idle for years. But the thing is, Skype has never been idle. It has been growing its user base, improving its technology, and, perhaps most importantly, getting its software on everything from mobile phones to HDTVs. No doubt there were a lot of suitors calling on Skype—word is, Google wanted it bad—but in the end a marriage to Microsoft could be the best match. Microsoft has cash and strong business connections, and Skype makes more voice calls than any other tech company. Plus, it gives Microsoft a growing product that isn't so dependent on Windows.

Skype, as most people know, is a service that lets you place phone and video calls over your Internet connection, a so-called Voice-over-IP service (VoIP). There are lots of other services out there that do the same thing, including AOL Instant Messenger and Microsoft Messenger, but Skype has remained the market leader, with its elegant interface and solid technology. Skype benefits from being the de facto VoIP standard in a networked business that depends on universal adoption. Even if Microsoft wanted to build an alternative—and it has tried—it would never grow fast enough to catch up to Skype.View SlideshowSee all (15) slides


Part of Skype's success is that it is on almost every platform out there. Sure, you can run it on Windows 7, but you can also run it on a Mac. You can use the iPhone app to call the Android app. You can even make Skype calls directly from your Panasonic Viera HDTV to your friends on Facebook. The key here is that unlike so many of Microsoft's products, the service isn't completely Windows-centric. And that flexibility is something Microsoft desperately needs.

Microsoft will bring something to this union as well. Microsoft has sold more than 10 million Kinect camera kits and has 42.9 million Xbox 360s installed worldwide. Add Skype to that mix, and video calls could finally break into the living room in a meaningful way.

And if that isn't enough, imagine how Skype could be integrated into Microsoft Office and its Lync-integrated communication server. Consumers will never be willing to pay more than a few pennies for Internet calls, even video calls. But build a functional inter-office video conferencing system, and you can bet businesses will be pulling out their wallets. This is a market Skype has barely begun to tap, and now it will have not only access to one of the premier business software developers, but also scads of cash.

Did Microsoft pay too much for Skype? Honestly, I have no idea. As I often say I am a technology analyst, not a technical analyst. Skype generates about $1 billion a year in revenues, but to Microsoft that isn't that big a deal. More significant are Skype's 145 million users worldwide. And perhaps even more important than that, is that Skype has managed to get itself on just about every platform out there. That is worth a lot.

Ultimately, I don't think the purchase price really matters. Remember, Microsoft has more than $40 billion in cash on hand. So, $8.5 billion won't hurt that much. Indeed, for what Microsoft is getting, $8.5 billion may be a bargain.

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(source:pcmag.com)

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