Microsoft Acquires Skype for $8.5 Billion - The UpStream

Microsoft Acquires Skype for $8.5 Billion

posted Tuesday May 10, 2011 by Nicholas DiMeo

Microsoft Acquires Skype for $8.5 Billion

The Internet was buzzing last night with rumors of Microsoft possibly acquiring VoIP company Skype for an amount in upwards of $7 billion. Well, this morning it was announced officially at a press event, which opened with a subtle, yet very blatant statement along the lines of, "since there isn't anything else going on today, we decided to give you guys something to talk about", clearing aimed at Google's I/O event. Microsoft's Steve Ballmer and Skype's Tony Bates, CEOs of each of their respective companies, joined the stage to announce the acquisition worth $8.5 billion in overseas cash. Clearly, Intel isn't the only one throwin' the Benjamins as of late.

Ballmer started first by stating that their goal has always been to empower people around the world with new technology to bring people together and by creating that new technology it would make life better. Ballmer then said that Skype simply made sense to help strengthen their position. Microsoft has always been about making communications the most fundamental aspect of life and that although communication is changing rapidly, moving beyond text and email, Microsoft wants to make talking with people around the world as easy as talking with someone across a kitchen table or conference room.

Microsoft's CEO then went on to talk about Skype and how much of a great franchise the company is. Skype has had an accelerated user growth as of late, with 170 million users connected to the service at a 40% growth year over year. There are over 600,000 new registrations every day. Obviously these users are increasing the amount of use the software is getting as well. There was a recorded 207 billion minutes of voice and video used in the Skype service in 2010, and at peak times there were upwards of 30 million users on the servers. Skype has also seen an explosion in video, with that being over 40% of their use. The company has also seen overall revenue growth of 20% year-over-year.

Steve Ballmer then went on to talk about the details of the deal, which we have after the break.

Diving into the juicy part of their press conference, Ballmer made a point to mention clearly that they started talking because of their familiarity with each other. Both companies started an independent partnership discussion to talk about client support and ad sales if they were to ever partner up. Microsoft then made an unsolicited offer to Skype and they finalized the price on April 18th, signing the deal last night and having a conference call with employees this morning. Microsoft will be visiting Skype sites in Europe over the coming weekend.

In regards to the newly formed Microsoft Skype Division, Skype CEO Tony Bates will be taking over the President role of that Division, and Ballmer wanted to make a huge underscore that Microsoft will remain committed to current Skype users, from today into the future. Microsoft wants to build on the current Skype talent base and Microsoft base but also hinted at wanting to support non-Microsoft clients. The Skype acquisition is going to be huge for Microsoft products, too. Ballmer made big mention at awesome possibilities with Xbox 360 and Kinect, as well as other Windows Phone and Windows devices. Skype would also look to connect with Lync, Outlook, Xbox Live and other Microsoft community-based sources, which would clearly enhance Skype's brand overall. It was interesting to hear that they are going to have a focus team strictly on Windows Phone and opportunities of the like, which would extend the reach of Skype.

However, it's not only the consumer-side of life that is important to this deal; the business side is important too. Ballmer wants this to be all about connecting your life. Your work life, your personal life and your social life can all be connected already with Outlook, Xbox with Kinect and other Windows devices and Skype naturally joins into Outlook to make this all go a step further.

Tony Bates then took the stage to mention Skype's core assets, which are an engaged user base, monetization opportunities and innovation in technology. Bates was proud to say that Skype has become a verb, like, "Can I Skype you?" He then went on to mentioned that Skype has hit the "100/100" level, which is 100 million users using the service each and every month with 100 minutes used per user each month.

Skype looks to increase these numbers with both real-time and nonreal-time communication premium subscription packages, but also by understanding how connected they are in major trends. On the the Internet, 13% of all time online is spent with communicating on VoIP services. Mobile VoIP usage has seen a 42% growth year over year and is expected to increase by 26x in the next five years.

Skype's CEO then took some time to thank Steve Ballmer for putting so much faith into the Skype brand and he hopes that this faith would help Skype and Microsoft go from reaching millions to billions to everyone on the planet. Bates then made yet another Xbox Live mention and hinted at more connectivity between the two services. He wanted his users to know that there is a definite commitment from Microsoft to support multi-platform clients.

Microsoft CFO Peter Klein then stepped in to talk about financials. He said that Skype has a strong core business, with the year 2010 bringing in $860 million in revenue, a 20% growth year-over-year. The deal will help grow opportunity in premium services and advertising. Klein then pointed out the obvious Lync/Skype opportunity platform and increased distribution of the services.

Ballmer then came back out to again mentioned growing, expanding and accelerating their businesses and to make sure everyone in the room knew that this was going to "empower consumers and businesses" alike.

In the Q&A that followed, both CEOs said that they were just "scratching the surface" as far as advertising goes, and they look to include more rich media and ads in the future on Skype. It was also noted that overseas cash made the most sense in this case for not only stockholders, but because this was a Luxembourg-based company. When asked how will life now be easier with Micro-Skype, Ballmer said that not everyone does video from a phone and there is an open opportunity there. He also asked to imagine a Kinect room-sized video conference, that would expand their current Live Messenger feature. He also said that this deal will definitely connect up the user bases, and in turn would "stitch to get the world" by making life easier in the living room, where a lot of families are spending more and more of their time together.

Whatever the case may be, I am excited to see what will come of this deal. With all the rumors and aspirations flying around, the possibilities are endless!

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