Skype Deal Will Broaden Microsoft's Consumer Audience

By CIOinsight  |  Posted 05-11-2011

The day after Microsoft announced it would acquire Skype for $8.5 billion, bloggers and pundits continued to dissect the deal's ramifications for both the companies involved and the tech industry as a whole.

Once the deal is closed, Skype will become a Microsoft division headed by Skype CEO Tony Bates, its services will be meshed with a variety of products in Microsoft's portfolio, including its Lync unified-communications platform, Outlook, and Xbox Live. In a May 10 press conference, Microsoft CEO Steve Ballmer suggested that the deal, the biggest in Microsoft's history, is the sort of bold move needed as his company faces competition on multiple fronts: "This Skype acquisition is entirely in keeping with our ambitious, forward-looking, irrepressible nature."

Skype previously found itself an acquisition target in 2005, when eBay paid $2.6 billion in cash and stock for the then two-year-old company. Four years later, the auction site sold a majority of its Skype holdings to a team of private investors--including Silver Lake Partners and Andreessen Horowitz--for $1.9 billion in cash. Microsoft's $8.5 billion, of course, represents a substantial markup, leading analysts to parse out what exactly the company is getting for that hefty amount of cash.

"Google and Apple and Skype have dominant consumerization brands," Forrester analyst Ted Schadler wrote in a May 10 blog posting. "Microsoft does not. Until now. As a bonus, Google doesn't get to buy Skype. And more importantly, neither does Cisco."

Of perhaps greater importance to Microsoft, though, is the ability to sell Skype's services. "While it's true that Skype has been slow to make money off its service, the potential is there," Schadler added. "Local phone numbers, three-way video conferencing, business administration, and making calls to real phone numbers are all things that people will pay for." This could bolster Microsoft's bottom line at a time when its traditional source of revenue, desktop-based hardware, has become increasingly overshadowed by the cloud; Microsoft's own cloud-based offerings, including Windows Azure, have yet to generate significant profits.

Skype could also boost the capabilities of Microsoft's Lync unified-communications platform, expanding the company's reach beyond business-to-business conferencing and into the consumer realm.

For more, read the eWEEK article: Microsoft's Skype Deal Opens Broad Consumer Audience.