• July 1, 2011
  • By Leonard Klie Editor, Speech Technology and CRM magazines
  • FYI

Microsoft to Acquire Skype for $8.5 Billion

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Microsoft has reached an agreement to acquire Skype, a leading provider of Internet phone services, for $8.5 billion. The acquisition is Microsoft’s biggest since the software giant’s founding in 1975, topping the $6 billion paid for online ad service aQuantive in 2007. Microsoft’s bid was at least double what Google and Facebook had offered, according to some sources.

With Skype’s 170 million connected users and more than 207 billion minutes of voice and video conversations in 2010, Microsoft hopes the deal will give it a valuable communications tool as it tries to capture market share in the Internet and smartphone markets. Skype will support Microsoft devices such as Xbox and Kinect, Windows Phone, and a wide array of Windows-based devices, and Microsoft will connect Skype users with Lync, Outlook, Xbox Live, and other communities. Microsoft says it 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,” Microsoft CEO Steve Ballmer said 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 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. eBay 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. Although Skype has made some progress since then, the company has struggled to maintain long-term profitability.

“We are thrilled with Skype’s transformation during the period of our ownership,” says 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.”

Marc Oestreich, legislative specialist for technical policy at Chicago’s Heartland Institute, says, “Consumers stand to gain in myriad ways,” noting that Skype accounts would work seamlessly with Microsoft products ranging from Outlook to Xbox.

Oestreich’s colleague, S.T. Karnick, research director at the Heartland Institute, was even more bullish on the deal. “Microsoft’s proposed purchase of the innovative Web communication company Skype would be good for Microsoft, good for Skype, and, most importantly, good for Internet users,” he says. “This deal will strengthen two major Web innovators whose competitors have been closing in on them for several years. It will increase competition in the industry, not suppress it, and will speed the pace of innovation to the benefit of consumers and businesses nationwide.”

However, 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 does not expect enterprises to feel a big impact. “Enterprises aren’t just going to jump on the Micro-Skype express,” he says. “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.”

Other analysts, however, suggest that Microsoft might try to couple Skype with some of its business applications to appeal to corporate users.

Julian Phillips, vice president of Whitlock, a global audiovisual solutions provider, believes Microsoft’s Skype acquisition will accelerate the adoption of videoconferencing across the enterprise. “Once Microsoft integrates this capability into their business and consumer products, having a three-minute video chat could be as common as a three-minute typed email exchange,” he says.

Hilton also points to Microsoft’s failures in the IP PBX and mobile markets. “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 says.

News Editor Leonard Klie can be reached at lklie@infotoday.com.

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