Microsoft Plans to Acquire Skype

Microsoft yesterday struck a deal to acquire Skype, a leading provider of Internet phone services, for $8.5 billion from an investor group led by Silver Lake and Andreessen Horowitz. It’s Microsoft’s biggest acquisition since the software giant’s founding in 1975, topping the $6 billion it paid for online ad service aQuantive in 2007.

With Skype’s 170 million connected users and more than 207 billion minutes of voice and video conversations in 2010, Miocrosoft hopes the deal will give it a valuable communications tool as it tries to recapture lost stake in the Internet and smartphone markets. Skype will support Microsoft devices like Xbox and Kinect, Windows Phone, and a wide array of Windows devices, and Microsoft will connect Skype users with Lync, Outlook, Xbox Live, and other communities. Microsoft will continue to invest in and support Skype clients on non-Microsoft platforms.

“Skype is a phenomenal service that is loved by millions of people around the world,” said Microsoft CEO Steve Ballmer in a statement. “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.”

Skype will become a new business division within Microsoft, and Skype CEO Tony Bates will assume the title of president of the Microsoft Skype Division, reporting directly to Ballmer.

“Microsoft and Skype share the vision of bringing software innovation and products to our customers,” Bates said in a statement. “Together, we will be able to accelerate Skype's plans to extend our global community and introduce new ways for everyone to communicate and collaborate.”

Founded in Finland in 2003, Skype was acquired by eBay in September 2005 for $2.6 billion, but its attempt to integrate the phone service with its online auction site never worked out. It sold a 70 percent share of Skype to a group of investors led by Silver Lake and Andreessen Horowitz for $2 billion in November 2009. Though Skype has made some progress since then, it still struggled to maintain long-term profitability.

“We are thrilled with Skype’s transformation during the period of our ownership,” said Egon Durban, managing director of Silver Lake. “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.”

But not everyone is so confident, Steve Hilton, head of enterprise research at Analysis Mason, says the deal “should give UC vendors like Avaya, Mitel, Polycom, NEC, and others some cause-for-pause,” but he doesn’t see it having much of an impact in the enterprise space. “Enterprises aren’t just going to jump on the Micro-Skype express,” he said in an email. “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. 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.”

Hilton recalls Microsoft’s past failures in the IP PBX market, most notably with its Response Point solution. He also points to a checkered past in the mobile market. “Mobility has become a huge driver of enterprise purchasing requirements, and Microsoft is still miles behind in the development and support of mobile-enabled solutions,” he added.

SpeechTek Covers
for qualified subscribers
Subscribe Now Current Issue Past Issues
Companies and Suppliers Mentioned