MSFT Buying SKYPE for $8.5 Billion…..Hmmm, How Badly Will They Screw This One Up??

by Dan May 10, 2011 9:04 am • Commentary

News hitting the wires as I write. Microsoft is paying $8.5 billion in cash for Skype. My first impression/question is how the heck did MSFT pass on Skype back in 2005 when EBAY, who seemingly had no use for online calling, bought them for $2.5billion? Skype was always a much better fit for a company like MSFT. And then MSFT passed again a couple years ago when private equity “took it off EBAY’s hands” for a sum that, at first blush, didn’t look like a ton more than what that had paid for it!

-There is no doubt that MSFT will have many more uses, for the already very commoditized service, than EBAY. And maybe they are doing this to keep it out of the hands of the likes of Facebook, AAPL, GOOG or any other perceived threats to MSFT’s weak online offerings……keep hearing in the press that bog focus of the deal is MSFT linking Kinect and Xbox 360 with Skype calling etc, this smacks of similar goals of EBAY wanting to link users, who ended up not wanting to communicate directly with each other.

Best wrap up I have read detailing the merits of the deal come from (read here) …excerpts below:

  • Skype gives Microsoft a  boost in the enterprise collaboration market, thanks to Skype’s voice, video and sharing capabilities, especially when competing with Cisco and Google.
  • It gives Microsoft a working relationship with carriers, many of them looking to partner with Skype as they start to transition to LTE-based networks.
  • It would give them a must-have application/service that can help with the adoption of the future versions of Windows Mobile operating system.
  • However, the biggest reason for Microsoft to buy Skype is Windows Phone 7 (Mobile OS) and Nokia. The software giant needs a competitive offering to Google Voice and Apple’s emerging communication platform, Facetime.


MSFT is trading down 2% in the pre-market on the news of their largest acquisition in their 35 year history.  Their use of $8.5billion in cash should not cause any real alarm to shareholders as the company has over $50billion in cash and generates a ton quarterly.

-MSFT throwing around that $30-35 billion in a desperation bid for RIMM is probably off the table for a while. But don’t worry. Once MSFT screws up Skype thoroughly they can redouble their efforts to screw up their mobile unit.

-The remaining shares of Skype that EBAY owned turned into a a rare Beanie Baby. EBAY stock is up pre-market on the news. No one could understand what EBAY was thinking on that original purchase. And it turns out all they needed to turn Skype into something more valuable was to get it as far away from themselves as possible, leaving time and money for those involved to make quixotic runs for the Governorship of California. Can we expect this to be their new business model going forward? Only time will tell.