Microsoft has confirmed that it will buy Skype, the internet telephony company, for $8.5bn in cash.
Microsoft has confirmed that it will buy Skype for $8.5bn (£5.2bn). Photo credit: Pixelbully
The £5.2bn takeover has been agreed by the boards of both Microsoft and Silver Lake, the leading firm in the investor group that picked up a majority stake in Skype in 2009. Other members of that group include CPP Investment Board, Andreessen Horowitz, Skype founders Niklas Zennström and Janus Friis — via their company Joltid — and eBay, which bought Skype in 2005 for $2.6bn and retained a 30-percent stake when it sold the service off in 2009.
The online auctioneers failed to integrate the peer-to-peer service into their business model as was originally planned. Microsoft said in a statement on Tuesday that its acquisition of Skype would "increase the accessibility of real-time video and voice communications, bringing benefits to both consumers and enterprise users and generating significant new business and revenue opportunities".
"Skype is a phenomenal service that is loved by millions of people around the world," said Microsoft chief Steve Ballmer. "Together we will create the future of real-time communications so people can easily stay connected to family, friends, clients and colleagues anywhere in the world."
Microsoft Skype Division
Assuming it gains regulatory approval, which is hoped for by the end of 2011, Skype will become a Microsoft business division called the Microsoft Skype Division. It will be headed up by current Skype chief Tony Bates. According to Microsoft, Skype will "support" various Microsoft devices such as Xbox and Kinect — which already offers video-calling capabilities — as well as the Windows Phone platforms and "a wide array of Windows devices".
Skype users will also be able to connect with Lync, Outlook, Xbox Live and "other communities", Microsoft said, promising that the company would "continue to invest in and support" Skype clients that are available for non-Microsoft platforms. Apart from the Windows version, Skype can be downloaded for Mac, Linux, Android, iPhone and Symbian, and is also integrated with TV sets from manufacturers such as Panasonic and Samsung.
The market-leading service, which had until now been planning a public flotation, currently has around 170 million users and carried over 207 billion minutes of voice and video conversations in 2010. Those figures represent a 150-percent increase in monthly calling minutes during Silver Lake's ownership tenure, Microsoft said. Silver Lake managing director Egon Durban said in the statement that his investor group was "thrilled with Skype's transformation during the period of our ownership and grateful for the extraordinary commitment of its management team and employees".
"We are excited about Skype's long-term future with Microsoft, as it is poised to become one of the world's most dynamic and comprehensive communications platforms," Durban added.
Enterprise customers
However, the takeover of Skype will not necessarily be enough to attract enterprise customers to Microsoft's voice and unified communications services, Analysys Mason analyst Steve Hilton said in a statement.
– Steve Hilton, Analysys Mason
Skype, while having some nice communications features, is still a consumer-grade solution. Enterprises don't want low-quality communications services when dealing with customers.
"Skype, while having some nice communications features, is still a consumer-grade solution," Hilton said. "Enterprises don't want low-quality communications services when dealing with customers. While enterprises will trade off lower prices for lower quality, they could have purchased Skype solutions long ago had they wanted to save a few dollars (or pounds or Euros)."
Hilton also pointed out that Microsoft had had "plenty of voice-centric train wrecks over the years", such as the company's IP PBX play, Response Point.
Informa analyst Giles Cottle said Microsoft would prove a better home for Skype than other companies rumoured to have been interested in buying the service, such as Google and Facebook.
"Microsoft... has numerous ways in which it can make use of Skype: video calling for Windows 7 Phones (and a competitor to [Apple] FaceTime), offering a true PC-based VoIP service with Windows Live Messenger, voice chat in Xbox Live and, of course, strengthening its enterprise communications proposition," Cottle said in a statement. He added that Microsoft had "undoubtedly... over-paid for Skype in the short term, but potentially not in the long term".
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Talkback
Of course, MS isn't going to make its money back - let's hope it doesn't do something stupid like stop development of Skype on non-Windows platforms, fixed and mobile, which is one of Skype's strengths.
Now we(Linux Users) have to say, Good Bye Skype.
Most of Microsoft's current products are incompatible with platforms like Mac OS X and Linux, so I'm guessing they will end development for those platforms with Skype. Especially with their push to force users to Windows 7. Unfortunately this will hurt the consumer, but a lot of things Microsoft does hurts the consumers so really no surprise there. IF they decide to end development on Mac OS X and Linux, it would at least be nice to see them release the source for those platforms under the GPL. But that will probably happen the day that pigs can fly.
Microsoft apparently publicly stated "Microsoft will continue to invest in and support Skype clients on non-Microsoft platforms" after the acquisition of Skype was announced. While I'd like to be optimistic, Microsoft is also the one that jumps up and down how they "love" open source yet they bash Linux at every opportunity.
If Microsoft said that it would "continue to invest in and support Skype clients on non-Microsoft platforms", how does that square with your statement that it bashes "Linux at every opportunity"? Its forward-looking statement on Skype development was an opportunity but Microsoft didn't bash Linux but instead committed to future development for it. The facts don't support your assertion.
@ Manek. Time will tell. Let's hope you are right. Market pressures might prevail as Skype is already so widely adopted.
manek :
Yes I agree that Microsoft's statement about keeping Skype for non-Microsoft platforms sounds promising for now. But I was referring to other activities and statements of Microsoft in the past in regards to open source as a whole and other non-Microsoft platforms. Microsoft's public statements about how Linux violates its software patents is one example of its effort to bash Linux. They seem to keep public statements to a minimum, but silently pursue avenues to undermine Linux as well by spreading FUD about Linux in different ways. The various patent lawsuits where they seem to have targeted specific companies that use open source and Linux, is one method of this. How many of these patent lawsuits have been against companies that write their own Windows-based software? I can't think of any.
Basically in my opinion, I think they made the public statement that they would support non-Microsoft platforms to make the acquisition more appealing for now. I don't forsee them continuing development of Skype for Mac OS X and Linux for the long term. Especially for Linux. When you take a look at the portfolio of Microsoft software that is developed for non-Microsoft platforms, the list is quite short, especially for Linux.
I think the key is the mobile play. MS isn't the dominant player in mobile but wants to be. So it must keep developing and supporting Skype on all mobile platforms to continue to grow the network effect. If it ever happens that MS controls that space, your predictions might come true. But I can't see that happening...
That's true and it may happen that way if Microsoft has a long-term interest. For example the Office suite for Mac, they have supported this for years and continue to develop it. Probably to boost market share for MS Office as a whole.
But, even so I still think there will be issues because it will still be kept proprietary and closed source. Even before this acquisition, there have been complaints regarding Skype and lack of support on Linux, for example. I think it's time for Skype users to look at alternatives, if possible, that are truly open source. Like GNU Free Call for example.
Well, that's a whole different kettle of fish....
I think it is pretty obvious what MS will do. Slowly add 'features' and 'improvements' to the Windows versions and either 'forget' to spread these across other architectures, or do so in a deliberately slow and resource-hungry manner. Being closed source, nobody will be able to actually prove this no matter what their suspicions.
$8.5bn?
Someone should tell Microsoft you can download Skype for free!