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11 May

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What to Expect from Microsoft’s Purchase of Skype

May 11, 2011 | By | No Comments

Monday evening Microsoft completed the $8.5 billion acquisition of Skype, the world’s fastest-growing service for Internet communication.  Microsoft’s CEO Steve Ballmer led the charge and paid a very expensive price for a company which is not yet profitable. Skype lost $6.9 million last year despite posting revenues totaling $860 million (Skype currently has $686 million in debt).

So…..Why is Skype worth so much?

  • Immense user base:  170 million active users and 663 million registered users.
  • Well used – Had over 207 billion minutes of voice and video conversation in 2010
  • Move to video – 40% of Skype activity is video related
  • Skype has a major footprint in mobile communications globally with their offerings

What to expect:

  • Skype will be integrated into Microsoft devices and systems: Xbox Live, the Windows Phone, Hotmail, Lync and Outlook, claims Microsoft in an announcement.
  • Microsoft has also promised to keep supporting and developing Skype clients on non-Microsoft platforms.
  • Skype’s CEO Tony Bates was already working on a Video Advertising plan, but with the acquisition video ads are sure to appear because very few of the 170 million active Skype users are paying customers (debt problem mentioned above).
  • Microsoft can now leverage Skype to urge mobile carriers to adopt the Nokia Windows Phone 7 smartphone. Having several carrier agreements in place for the phone’s release in about a year will really help sales.
  • Skype with new help from Microsoft will continue to pursue an Enterprise Offering.  They have long struggled with business offerings because of a less secure infrastructure (stability and reliability concerns).

It will be very interesting to see how all of this unfolds, but I would expect more ads and having to pay for better service.  I hope that a better revenue stream will allow Skype to become more reliable and easier to use globally (see my blog on Skype/ WIFI frustration).  We will continue to monitor the social media reaction on this acquisition.

What do you think about this deal?  Will it work out for both parties?

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