Microsoft buys Skype for $8.5bn (The Telegraph, 10 May 2011)

Courtesy: "The Telegraph, UK", 10 May 2011
Microsoft buys Skype for $8.5bn  
Microsoft has agreed to buy online video company Skype for $8.5bn as its battle with Google and Facebook in the rapidly evolving world of internet communication heats up.

The deal is the largest yet in Microsoft's 36-year history and also represents a remarkable return for the group of investors who acquired Skype from eBay in 2009 in a deal that then valued the company at $2.75bn.

The price for Skype, which lost $7m last year and has never made a profit, has raised some eyebrows in Silicon Valley but also underlines the pressure Steve Ballmer, Microsoft's chief executive, is under to secure a bigger share of online and mobile advertising revenues.

Mr Ballmer, who took over from Microsoft co-founder Bill Gates, is grappling with a market in which more advertising revenues are moving online but, more critically for Microsoft, more basic computing services are too.

"It's a pretty price," said Colin Gillis, a technology analyst at BGC Partners. "But it will be all about whether Microsoft integrates or destroys the asset."

Microsoft said that Skype, which 170m people used last year to hold video conversations online, will be intergrated into a variety of its products including XBox, its video game consul, and Outlook, its email product. Analysts said that Microsoft is also likely to offer Skype as part of its next Windows 8 operating system, which is due for release next year.

Microsoft's purchase is the second time that a corporate behemoth has paid billions for Skype. In 2006 eBay stumped up $2.6bn in the hope that its users would use the video service to help negotiate deals. Three years later eBay cut their losses, selling Skype to a group of investors including Silver Lake Partners, a private equity firm and Andreessen Horotwitz, a venture capital firm co-founded by Marc Andreessen.
Skype, which had been considering a flotation and also reportedly held talks with Facebook and Google, generates revenues through advertising and also has just over 8m customers who pay to make make traditional phone calls at a discounted rate using its technology.
The company, which was founded in 2003 by Niklas Zennstrom and Janus Friis, employs a technology known as voice over internet protocol.
As part of the deal, Skype will now become a new division within Microsoft led by Tony Bates, Skype's chief executive. Mr Gillis said it was unlikely that Mr Bates and Skype's other senior executives would stay at Microsoft for long. "Look what they've done in 18 months," said Mr Gillis. "They'll be off to enjoy a few good steak dinners."
Mr Ballmer said that the acquisition would allow Microsoft to "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."

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