So much for rumors. After recent whispers that Google and Facebook were considering buying Skype, Microsoft has snapped up the company for $8.5 billion in an all-cash deal. The software giant has big plans for the real-time communications company.
Skype will support Microsoft devices like Xbox and Kinect, Windows Phone 7, and various other Windows devices. Microsoft will also connect Skype users with Lync, Outlook, Xbox Live, and other communities it owns. And Microsoft will continue to invest in and support Skype clients on non-Microsoft platforms.
"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."
Skype boasts about 170 million connected users who logged more than 207 billion minutes of voice and video conversations in 2010. Of course, Microsoft is no stranger to real-time communications. Microsoft Messenger is one of the most popular instant-messaging platforms in the world, and Microsoft also owns Hotmail, Lync, Outlook and Xbox Live.
"There are a number of use cases that one can envision for Skype within Microsoft. There are obvious enterprise telephony and video-conferencing uses," said Greg Sterling, principal analyst at Sterling Market Intelligence. "But the consumer applications are more interesting to consider: Video calling and chat integration with Xbox and Windows phones. Skype also operates a pay-per-call advertising business as well."
Although Sterling thinks the $8.5 billion price is "very high," he noted that Skype is nearing $1 billion in annual revenue. That, he said, will take some of the sting out of the cost. And if Microsoft can execute this merger well, he added, it may look like a very smart buy in the rearview mirror.
Skype's Second Go-Round
Skype will become a new business division within Microsoft, and Skype CEO Tony Bates will assume the title of president of the Microsoft Skype Division, reporting directly to Ballmer. Bates expects the Microsoft buy to "accelerate Skype's plans to extend our global community and introduce new ways for everyone to communicate and collaborate."
This isn't the first time Skype has been acquired by a household name. After launching in 2003, eBay acquired Skype in 2005 for $2.6 billion. The acquisition was supposed to strengthen eBay's global marketplace and payments platform while opening several new lines of business and creating significant new monetization opportunities for the company.
In April 2009, eBay announced it would spin off the Internet VoIP telephone service and make an initial public offering during the first half of 2010. An investment group led by Silver Lake acquired the company, which never did go IPO. But Skype has added value since the spin-off, increasing monthly calling minutes by 150 percent, developing new revenue streams and strategic partnerships, acquiring the intellectual property powering its peer-to-peer network, and recruiting an outstanding senior management team.