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May 09, 2011

Microsoft Buys Skype

by Mil Arcega

With more than 170 million Skype users worldwide, Microsoft is betting its newest acquisition will help expand its mobile presence and appeal to corporate users of video and voice communications.

Microsoft CEO Steve Ballmer says it is the biggest deal yet in the company's 36-year history. "This is a big day for Skype; this is a big day for Microsoft.  We're adding a new division and a new promise to our customers, the promise of universal next generation communications," he said.

But at $8.5 billion, analysts say it is a hefty price tag for a popular but money losing Internet phone and video-conferencing service.


PC Magazine executive editor Dan Costa believes Microsoft had to move quickly after reports that Skype was also entertaining offers from Google and Facebook. "I think Microsoft paid to keep competitors away.  I think there were lots of companies that were interested in this.  A lot of people say Google was looking at buying it, so I think Microsoft paid a premium in order to make sure they got the prize that they wanted," he said.

Despite doubling sales and profits over the last eight years, Microsoft stock has mostly languished as investors worried about the software giant's ability to counter new rivals.

But Costa says the acquisition should help Microsoft expand its user-based applications. "I imagine at some point we are going to see it built into Windows 7.  So you are going to see a lot more people with Skype connections.  And the way these network tools work, the more people that have the service, the more valuable it is," he said.

Skype CEO Tony Bates will continue to run European operations for the Luxembourg-based company.  He says the multi-billion dollar deal reflects the importance Microsoft places on gaining new customers and platforms. "The exciting opportunity is ahead of us in terms of the way that we can interact with the key assets of Microsoft, whether it's Xbox Live, whether it's some of the end devices.  The commitment from Microsoft to support multi-platform clients, whether that be Microsoft end-point clients or other end-point clients is absolutely critical," he said.

Some investors have already expressed skepticism, pushing Microsoft shares down -- more than one percent. Regulators have until the end of the year to approve the deal.