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Microsoft buys Skype for $8.5 billion

Microsoft confirmed today that it is spending eight and half billion dollars in cash to acquire peer to peer communications company Skype, which operates the world’s most preeminent VOIP (voice over Internet protocol) platform.

The deal, which was first reported by the tech press a couple of days ago, is the biggest acquisition in Microsoft’s history, superseding its purchase of aQuantive in 2007.

It also marks the beginning of a new chapter for Luxembourg-based Skype, which started out in 2003 as its own company, became part of eBay in 2005, and then was spun out of eBay in 2009 with the help of a consortium of venture capital firms, which now stand to profit handily from the sale to Microsoft.

eBay bought Skype six years ago for an estimated $3.1 billion; the company later admitted that it had overpaid. Skype was valued at $2.75 billion in November 2009 when eBay sold most of it to a consortium led by Silver Lake. Microsoft is now buying Skype for more than twice that sum a year and a half later.

No wonder, then, that many tech pundits say Microsoft is overpaying.

Microsoft obviously decided that it didn’t just want Skype, it needed Skype, and, consequently, it would be better to put up the money to buy it now instead of waiting. CEO Steve Ballmer contended that Skype was on the path to an IPO (initial public offering), and that’s likely true. So the acquisition makes sense in that context.

It is, after all, easier for a publicly-owned corporation to buy a privately-owned company than another publicly-owned corporation.

Microsoft memorably tried to buy Yahoo a few years ago. That offer was rebuffed, and Microsoft and Yahoo eventually forged a search and advertising partnership instead.

There’s been speculation that Skype will be no longer supported on platforms other than Windows and Windows Phone, but Microsoft says that’s not the case. The company explicitly said in its news release confirming the acquisition that it “will continue to invest in and support Skype clients on non-Microsoft platforms.”

That suggests the Skype client for Mac OS and GNU/Linux distributions will continue to be developed and be available for download in the years to come. And it makes sense: Microsoft would be foolish to not make Skype available for other platforms.

However, that commitment won’t prevent Microsoft from integrating Skype more tightly into its own products. And indeed, the company says we can soon expect to see Skype woven into Hotmail, Outlook, Live Messenger, Xbox and Kinect, as well as Windows Phone (which has quietly assimilated Zune).

Facebook and Google were also said to be interested in Skype, though Facebook’s interest was reportedly not serious. Microsoft is actually an investor in Facebook, and Facebook utilizes Bing for web search, so the social networking giant doesn’t have much to worry about. Microsoft rivals Apple and Google are probably much more concerned about Skype becoming a Microsoft subsidiary.

The deal has already been approved by the boards of directors of both companies. It is subject to regulatory approval, but that’s likely just a formality.


  1. Posted May 10th, 2011 at 11:25 PM | Permalink

    I think Microsoft pay more and Skype calling charges will be increased.

  2. Posted May 10th, 2011 at 11:48 PM | Permalink

    Skype’s a *huge* bandwidth pig. If MS deploys it widely, what a mess that will be!

    See, for instance:

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