Microsoft purchased Skype to keep it out of Google’s hands

Sun, May 15, 2011


By Luis Estrada:

Microsoft last week made a surprise move when it acquired Skype for $8.5 billion. Microsoft’s interest in the Internet chat and video company was reportedly the result of the company’s desire to integrate the technology across its product line, from Windows Phone 7 devices to its Xbox video game console.

But $8.5 billion is an astronomical purchase price, and indeed, the most expensive acquisition in Microsoft’s history. By way of comparison, Apple purchased NeXT for $429 million in cash and 1.5 million shares. Moreover, remember that eBay purchased Skype just a few years ago for $2.6 billion. So how in the span of a few years was Skype able to net a valuation three times higher than that? Especially when Skype itself isn’t all that profitable? What in the world was Microsoft thinking?

One theory posited by Robert Cringley, and echoed by others, is that Microsoft was motivated to purchase Skype to prevent it from landing in Google’s lap. Indeed, some have speculated that Google purposefully drove up the asking price to the exorbitant amount Microsoft finally agreed to. Of course, it’s also possible that Skype engaged in some crafty negotiations with Redmond to make them think they’d lose out on the deal if they didn’t act quickly.

In any event, Cringley explains why Microsoft was so fearful of Google acquiring Skype:

Were Google to buy Skype they’d convert those 663 million Skype subscriptions to Google Voice and Gmail and in a swoop make parts of Yahoo and MSN irrelevant. They’d build a brilliant Skype client right into the DNA of Android, draining telco revenue and maybe killing smaller players like Windows Phone. They’d cut deals with equipment makers like Cisco (Linksys) and NetGear and steal voice revenue from telcos and cable companies alike.  That’s all Redmondesque behavior and if anyone is going to be behaving that way, Ballmer feels, it had darned well better be Redmond.

If Microsoft is to continue to grow and have an existence post-PC it has to be first or second in the mobile market, Ballmer knows that. Buying Skype doesn’t guarantee Microsoft that success, but NOT buying Skype would have practically guaranteed Microsoft’s failure.

Will Microsoft effectively be able to integrate Skype across its product line and justify the whopping $8.5 billion it doled out? Color us skeptical, and it’s not like Microsoft has a good track record with these types of acquisitions to begin with.

Either way, now that Microsoft is finally making moves, the tech industry is as competitive and interesting as its ever been. Meanwhile, Apple fans who enjoy using Skype can rest assured that the service will remain available for both the Mac and the iPhone.


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