Microsoft Buys Skype for $8.5 Billion

by Jordan Richardson on May 11, 2011

Microsoft has made the biggest deal in its history with the acquisition of Skype for $8.5 billion. The purchase of the Internet telephone service came as the Redmond-based corporation was under pressure to regain some of the ground that it’d lost to its rivals in the smart phone and communication market.

Nothing has come easy for Microsoft as of late and its brand profile has been suffering, so the Skype purchase couldn’t have come at a better time. With 107 million active users on Skype and a presence that permeates the mobile device universe more than Justin Bieber permeates the mindset of tween girls, the pick-up is a good one in terms of raising Microsoft’s business profile.

The deal was all-cash and has been approved by the boards of both companies. The purchase price includes debt, presumably, and positions Microsoft back in the game with respect to mobile communications.

Skype hasn’t exactly been a money-maker, though. Users mostly utilize the free calling services, as expected, and Skype reported a loss of $7 million on revenue of $860 million last year. Skype CEO Tony Bates maintained on Tuesday that his company has seen revenue growth of about 20 percent per year, with an average of about 8.8 million customers using the pay services each month.

One of the biggest victories for Microsoft here may be the “moral” one. Both Google and Facebook were kicking the tires on Skype, but Microsoft topped the offers and landed the deal in the end. Like Microsoft, both Google and Facebook wanted to use Skype’s services to integrate audio and video calling services to their existing lines. Microsoft’s offer clearly topped the competition, though, and that opens the door for some potential upgrades to Windows-powered products.

Microsoft will doubtlessly introduce Skype to as much of its product line as humanly possible. This includes Xbox, Outlook, Office, and so forth. We can also look ahead to plans to integrate Skype with enterprise products, a move that could theoretically help Microsoft pass a stalled RIM on the highway.

“We’re familiar with them and we’ve been talking for a while about other partnerships,” Microsoft CEO Steve Ballmer of the deal at Tuesday’s press conference. “Our vision is that products and services that Skype users know and love will simply grow and be advanced.”

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Written by: Jordan Richardson. www.digitcom.ca. Follow TheTelecomBlog.com by: RSS, Twitter, Facebook, or YouTube.

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