Tweet
Here's why Microsoft's $8.5 billion acquisition of Skype makes sense: Microsoft, still a laggard on the Internet, has landed one of the most popular brands on the Web with a deeply engaged base of users. And it can bake Skype's widely used technology into its communications product, making them better.
At least, that's the bet. Microsoft says Skype has more than 170 million connected users. According to a regulatory filing, Skype claims its users made 207 billion minutes of voice and video calls last year. Microsoft wants to capitalize on that loyalty, putting Skype technology into various products, hoping that it can spin Skype's users into other Microsoft products.
Microsoft CEO Steve Ballmer
(Credit: Microsoft)
There are plenty of questions about whether paying $8.5 billion makes sense. But for Microsoft, which at the end of the most recent quarter reported that it was sitting on $50 billion in cash, it's not really the right question. Microsoft has poured billions of dollars into businesses over the years to find new markets. Some are starting to pay off, such as its Xbox video game business. And others are still a long way away from making money, such as its online services division.
For Microsoft, the question is whether Skype allows it to get ahead of rivals, particularly Google and Apple, in key consumer market. Skype offers that potential.
"Today's announcement underscores who we are as a company," Microsoft CEO Steve Ballmer said in an e-mail to employees. "We are ambitious and forward looking. We have big goals and aspirations. And when we look into the world and see opportunities to do more with technology, we'll drive toward them and keep pushing."
That regulatory filing, which Skype sent to the Securities and Exchange Commission in advance of an initial public offering that won't happen now, said the company lost $7 million on $850 million in net revenue. While $7 million is hardly a meaningful loss at Microsoft, the company posted $5.7 billion in operating income in the last quarter.
But Microsoft doesn't have to turn Skype into a standalone profit center. It has businesses that can be improved by baking Skype technology into them. At least, that's the bet. Microsoft can add Skype to a portfolio of real-time communications products, that include Outlook, Messenger, Hotmail, Xbox Live and Lync. And it can add Skype into Windows Phone.
Just as important, it can try to sell Skype users on other Microsoft products, connecting them to one-another through products such as Outlook. It has the potential of making Microsoft's existing communications products more valuable. It also gives those customers less reason to use rival technology from Google and Apple.
That's why Microsoft is willing to shell out more than it's ever paid for an acquisition. (It's $6 billion deal for aQuantive is now ranked number two.) Unlike Skype's previous owner, eBay, Microsoft actually has some synergy with the company. Its real challenge won't be making money from Skype. It will be figuring out how to use Skype to make Microsoft's products better.
We will update this story after Microsoft's 8 a.m. PT press conference in San Francisco.
Powered By WizardRSS.com | Full Text RSS Feed | Amazon Plugin | Hud Settlement Statement
At least, that's the bet. Microsoft says Skype has more than 170 million connected users. According to a regulatory filing, Skype claims its users made 207 billion minutes of voice and video calls last year. Microsoft wants to capitalize on that loyalty, putting Skype technology into various products, hoping that it can spin Skype's users into other Microsoft products.
Microsoft CEO Steve Ballmer(Credit: Microsoft)
There are plenty of questions about whether paying $8.5 billion makes sense. But for Microsoft, which at the end of the most recent quarter reported that it was sitting on $50 billion in cash, it's not really the right question. Microsoft has poured billions of dollars into businesses over the years to find new markets. Some are starting to pay off, such as its Xbox video game business. And others are still a long way away from making money, such as its online services division.
For Microsoft, the question is whether Skype allows it to get ahead of rivals, particularly Google and Apple, in key consumer market. Skype offers that potential.
"Today's announcement underscores who we are as a company," Microsoft CEO Steve Ballmer said in an e-mail to employees. "We are ambitious and forward looking. We have big goals and aspirations. And when we look into the world and see opportunities to do more with technology, we'll drive toward them and keep pushing."
That regulatory filing, which Skype sent to the Securities and Exchange Commission in advance of an initial public offering that won't happen now, said the company lost $7 million on $850 million in net revenue. While $7 million is hardly a meaningful loss at Microsoft, the company posted $5.7 billion in operating income in the last quarter.
But Microsoft doesn't have to turn Skype into a standalone profit center. It has businesses that can be improved by baking Skype technology into them. At least, that's the bet. Microsoft can add Skype to a portfolio of real-time communications products, that include Outlook, Messenger, Hotmail, Xbox Live and Lync. And it can add Skype into Windows Phone.
Just as important, it can try to sell Skype users on other Microsoft products, connecting them to one-another through products such as Outlook. It has the potential of making Microsoft's existing communications products more valuable. It also gives those customers less reason to use rival technology from Google and Apple.
That's why Microsoft is willing to shell out more than it's ever paid for an acquisition. (It's $6 billion deal for aQuantive is now ranked number two.) Unlike Skype's previous owner, eBay, Microsoft actually has some synergy with the company. Its real challenge won't be making money from Skype. It will be figuring out how to use Skype to make Microsoft's products better.
We will update this story after Microsoft's 8 a.m. PT press conference in San Francisco.
Powered By WizardRSS.com | Full Text RSS Feed | Amazon Plugin | Hud Settlement Statement