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Microsoft, the world's largest software maker, announced today it has inked an agreement to purchase Skype Global for $8.5 billion in cold, hard cash. This ranks as Microsoft's biggest acquisition ever, and the Redmond software giant hopes its money will be well spent as it looks bolster its voice and video communications, and go up against Google and other rivals. Still, at $8.5 billion, the obvious questions is, did Microsoft overpay?
That depends on what Microsoft does with it. Microsoft says the acquisition will increase the accessibility of real-time video and voice communications, which it will pitch in some form or another to both home consumers and enterprise users. And with Microsoft now owning the VoIP service, expect to see Skype support shuttled across Microsoft's entire portfolio, from devices like the Xbox and Kinect, to Windows Phone, Lync, and Outlook.
"Skype is a phenomenal service that is loved by millions of people around the world," said Microsoft CEO Steve Ballmer. "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."
Still, Microsoft has its work cut out for itself. As The New York Times points out, Skype generates most of its income from a small subset of users who pay for long distance calls to telephone numbers, and in 2010, Skype reported a net loss of $7 million. The high price tag makes it easy to criticize Microsoft on this one, though not everyone agrees it's such a bad move.
Forbes wrote a lengthy piece in defense of the $8.5 billion deal, saying that both Facebook and Google were interested in the service, and even if Microsoft never makes any money with this, "they've weakened Google a little from taking this asset from them." Microsoft also has the option of licensing Skype software to Facebook, which would make both companies more valuable (and remember, Microsoft is already invested in Facebook). And at the end of the day, it's not like Microsoft had to beg, borrow, and steal money to get this deal done. The deal costs Microsoft $8.5 billion, or 17 percent of the cash they had on their balance sheet at the end of the quarter, Forbes says.
What are your thoughts on this deal?