Microsoft buying Skype

[preslove]

Kind of like how Apple should have just stuck to making iPods? The vast majority of corporate purchases destroy value, but they may have to do it still. It is an interesting move for sure.

Apple has a history of entering new/unexploited markets and succeeding. Microsoft has a history of wasting billions of dollars on new projects that go nowhere. See the Kin fiasco and the slow moving train wreck that is Bing. Paying 8.5 billion for Skype is one more datapoint on an obvious trend line towards fail.

I'm not a fanboy or microsoft hater, but this is pretty hard to ignore. WP7 looks good & I may jump from android to a Nokia WP7 phone next year, if the hardware is as sexy as I hope it will be. But, the one thing holding me back is the suspicion that WP7 won't grow that much & M$ pulls the plug to avoid losing more and more $. It may become hard to maintain their mobile wing, considering how many billions they've already lost.

 

[ultimatebob]

What a waste of shareholder value.
It certainly wouldn't cost anywhere near $8.5 billion for them to build their own Skype alternative.

Microsoft should just stick to Windows and Office and paying dividends.

What they're really paying for is Skype's user/customer list, the name brand, their software patents, and whatever fancy new technology they're currently working on.

I wouldn't be surprised if they had some really cool stuff (like an Android tablet version of Skype with video support) in internal beta that we're not aware of.

It all that worth over 8 billion, though? I highly doubt it.

 

[lothar]

Kind of like how Apple should have just stuck to making iPods?

Are you suggesting that Apple doesn't make a profit on any of it's products besides iPods? You're saying they don't make a profit on iPhones and iPads? Because that's essentially what you're alluding to.

I said Microsoft's cash cow is Windows and Office. Almost every other business they've jumped into has been a loss looser for them. Online business, video games, etc...Windows has a ~76% operating margin, ~65% for Office, and ~35% for Servers....Every other parts of the business in Microsoft loses money.
I don't see how your analogy and comparison to Apple makes much sense, since unlike Microsoft, Apple has actually posted profits from branching to other areas.

If you are indeed suggesting that Apple makes a profit on iPods with losses on iPhones/iPads and should have stuck to making iPods instead, then by all means prove your claim.

The vast majority of corporate purchases destroy value, but they may have to do it still. It is an interesting move for sure.

The question is why do they have to?
It is an interesting move, but I'm still scratching my head on this one like I did for Yahoo.

 

[lothar]

I'd agree on the Yahoo deal, but I think it's different given Skype's position in the VOIP market relative to Yahoo's position in the search market. Yahoo, even then in 2008 was in a pretty clear decline. I think Skype is more akin to Yahoo in the late 90s or very early 2000s, mostly in that I'd regard it as still on an upswing. Microsoft's support could give it what it needs to cement that position so that it doesn't experience that decline, especially if they integrate it with XBL, WP7, Windows and continue support for Skype on other platforms.

I think if they market it as a multi-purpose, multi-platform messenger that can easily let you talk to your XBL friends from your phone or call your grandma from your laptop or video chat with your fiancee on her laptop from your phone, it could gain a lot of ground. The only problem is how you make money off what are generally free services.

That's the key.
Will they develop bastardized versions on Apple and Android with reduced or missing features in other to leverage their WP7/W7/future OS using better integration and providing better support leading to more sales in their Windows, Office, and Server divisions?
If they will only make everything exactly equal among all platforms, then they could have had all that for free by not paying $8.5 billion for it.

Would be interesting to see how they turn this around since Skype has been losing money recently.

That part is the most important and certainly matters to anyone who owns Microsoft stock or is/was considering buying their shares. No one wants this to be another "online division" at Microsoft. For normal people on the street? They're just another company.

 

[Eug]

I posted this elsewhere already, so I'll just quote myself:

---

FWIW, MS is extremely good at developing video codecs. VC-1 competes directly against H.264, and MS developed it themselves.

I'm thinking that MS would migrate Skype to VC-1, which by the way has now been adopted (along with H.264) by some of the big video conferencing companies, and lots of the embedded chip makers.

So, I'm not seeing this necessarily only as targeting the VoIP market, but as a direct counter attack against the H.264 onslaught.

In fact, with VC-1 as part of Skype, all of a sudden a bazillion Mac users would be installing VC-1 and Silverlight when they install Skype, just like a bazillion Windows users are installing Quicktime when they install iTunes. Furthermore, H.264 is starting to get some traction in HTML5. Having VC-1 as a requirement for Skype would be a backdoor for increased VC-1 / Silverlight browser support.

 

[Schadenfroh]

Hahaha, Microsoft got ripped off.

 

[Joseph F]

The US intelligence community just cracked open their 4th keg and should be partying throughout the morning on this one.

No way in hail is Microsoft going to keep them out of Skype anymore...(if the feds haven't already cracked it, that is.)

FUUUUUUUUUUUUUUUUUUUUUUUUU... Thank you for pointing this out. I hadn't even thought of this... now I'll have to look elsewhere for secure communications.

 

[Imp]

Sounds like they added a nice premium as an "F U" to Google and Facebook.

Don't use Skype, but even the tech dinosaurs I know use or know about it. If Microsoft doesn't really fuc* the dog, it should integrate nicely with their broad base of products... It damn well better, I have 1/3 of my savings in their stock.

 

[silverpig]

Apple has a history of entering new/unexploited markets and succeeding. Microsoft has a history of wasting billions of dollars on new projects that go nowhere. See the Kin fiasco and the slow moving train wreck that is Bing. Paying 8.5 billion for Skype is one more datapoint on an obvious trend line towards fail.

I'm not a fanboy or microsoft hater, but this is pretty hard to ignore. WP7 looks good & I may jump from android to a Nokia WP7 phone next year, if the hardware is as sexy as I hope it will be. But, the one thing holding me back is the suspicion that WP7 won't grow that much & M$ pulls the plug to avoid losing more and more $. It may become hard to maintain their mobile wing, considering how many billions they've already lost.

Remember the Newton? How about Google Buzz? Apple and Google have failed too. Microsoft has the most widespread OS on the market for ~20 years now, and has the industry standard office suite. Google is the search king. Apple does their own thing well too. They each have things they are great at, and things that they have messed up. Who would have thought that Google would do phones well? They are a search/ad company, not a phone company or an OS company.

The $8.5 billion goes towards technology, patents, people, customers, a well developed network, and it also blocks google/facebook/apple/whoever else from buying Skype themselves.

 

[silverpig]

Are you suggesting that Apple doesn't make a profit on any of it's products besides iPods? You're saying they don't make a profit on iPhones and iPads? Because that's essentially what you're alluding to.

No, I'm saying the exact opposite. Apple made money on iPods just like Microsoft makes money on Office and Windows. Saying MS should just stick to Office and Windows is like saying Apples should have just stuck to iPods.

But they didn't. They now make tons more on iPhones/iPads. They did something different and expanded. For MS to sit back and not do anything new would be a long slow death sentence for them.

 

[Kadarin]

My impression (admittedly as someone who doesn't really give a crap about Microsoft anything) is that Microsoft lacks anything resembling a coherent vision.

 

[Kaido]

My impression (admittedly as someone who doesn't really give a crap about Microsoft anything) is that Microsoft lacks anything resembling a coherent vision.

Wait wait, it's coming in clearer now...

http://www.gsmdome.com/wp-content/uploads/2009/10/steve-ballmer.jpg

 

[Kaido]

My biggest concern is the last of non-MS OS support or priority.

Just like their Office for Mac. It's always way behind and always lacking some kind of feature the Windows versions have had forever. Office 2011 for Mac is the closest yet to the Windows version and even with that the Outlook app doesn't support server side rules, which is a huge pain in the ass in the business world.

I see this driving Google Talk to becoming more and more popular, if they can get a IOS app.

Office for Mac is such a piece of garbage. I run OS X as my primary OS and have a VMware virtual machine exclusively for running Office 2007 - pretty sad, huh? I can't stand Office for Mac. It feels like they wrote in in Java...in 1999. But to be fair, I don't like iWork for Mac either :awe:

I'd love to integrate more Macs into my workplace, but I can't justify them without running a 2x App server or similar system to stream Windows apps, especially Office, to the OS X desktops. And it's kinda pointless to run a full terminal session when the bosses see thin clients for $400 that do the same thing :\

 

[zerocool84]

Remember the Newton? How about Google Buzz? Apple and Google have failed too. Microsoft has the most widespread OS on the market for ~20 years now, and has the industry standard office suite. Google is the search king. Apple does their own thing well too. They each have things they are great at, and things that they have messed up. Who would have thought that Google would do phones well? They are a search/ad company, not a phone company or an OS company.

The $8.5 billion goes towards technology, patents, people, customers, a well developed network, and it also blocks google/facebook/apple/whoever else from buying Skype themselves.

Microsoft took a shot with console gaming and they've obviously succeeded with that.

 

[Kaido]

Microsoft took a shot with console gaming and they've obviously succeeded with that.

I'm personally a big fan of Microsoft hardware. Love my ergo keyboard, and the 360 controller fits a lot more comfortably in my hand than the PS3 controller does.

 

[lothar]

Microsoft took a shot with console gaming and they've obviously succeeded with that.

Define "succeeded".
Has their console gaming division posted a profit yet? I haven't followed up recently but I know as of 1.5-2 years ago when I looked at the company in great detail, they never posted a profit in that division.

When you say "succeeded", are you basing that on subjective or objective(qualitative) analysis?
Objective(qualitative) analysis is the only one that matters or the one that matters more.

Subjective: Comparing Xbox, PS3, and Wii on places like VBG charts and NDP reports, etc...
Objective(qualitative): Reading Microsoft's actual earnings report which details each division and shows how much actual profit/loss $$$ was made?

 

[dwell]

What a waste of money. Microsoft is such a fucked company in today's landscape.

 

[ElFenix]

Define "succeeded".
Has their console gaming division posted a profit yet? I haven't followed up recently but I know as of 1.5-2 years ago when I looked at the company in great detail, they never posted a profit in that division.

When you say "succeeded", are you basing that on subjective or objective analysis?

MS got into gaming because sony was trying to make the PS2 and subsequent designs into the center of your digital home. obviously, MS wants a windows computer to be the center of your digital home. MS sees the losses in the console market as defending windows' ginormous profits.

 

[lothar]

No, I'm saying the exact opposite. Apple made money on iPods just like Microsoft makes money on Office and Windows. Saying MS should just stick to Office and Windows is like saying Apples should have just stuck to iPods.

But they didn't. They now make tons more on iPhones/iPads. They did something different and expanded. For MS to sit back and not do anything new would be a long slow death sentence for them.

If Apple lost tons of money in iPhone and iPads like Microsoft lost in their other non-Windows/Office/Server divisions, I would agree with the statement that Apple should have just stuck to iPods. We know however that that's not the case, so the analogy is not really relevant.

Yeah, but most of the new things they've done so far has quickened their "long-slow" death sentence since they're losing $2.5 billion yearly in their "online" division alone which is just one of their many non-Windows, Office, and Server divisions.

 

[VinylxScratches]

Skype is ruined. Great.

 

[lothar]

MS got into gaming because sony was trying to make the PS2 and subsequent designs into the center of your digital home. obviously, MS wants a windows computer to be the center of your digital home. MS sees the losses in the console market as defending windows' ginormous profits.

Interesting theory.

Windows is still the center of my digital home.
No consoles from Sony, Nintendo, or Microsoft can match that.

Would love to see some kind of analysis of how their Xbox and online division contributed to(or protected) their ginormous Windows profits.
However, I know that's probably impossible to find out.

 

[darkewaffle]

If Apple lost tons of money in iPhone and iPads like Microsoft lost in their other non-Windows/Office/Server divisions, I would agree with the statement that Apple should have just stuck to iPods. We know however that that's not the case, so the analogy is not really relevant.

Yeah, but most of the new things they've done so far has quickened their "long-slow" death sentence since they're losing $2.5 billion yearly in their "online" division alone which is just one of their many non-Windows, Office, and Server divisions.

I think his point is if you look further back, to 2004 or 2005 or whenever was before the first iPhone release and someone told you Apple was making a phone, you could argue the same thing that it was a bad venture. You could probably have made the same argument for the iPod back in 2001(?).

And I'd call Microsoft's Xbox venture a success, at least in the ways that matter at this point. You have to spend money to make money; building the brand, recruiting developers, creating a game library, finding and growing exciting [exclusive] IPs, creating the defining online console gaming service, research and development, it's all an investment. Xbox and the 360 are the 'college' stage of that platform. Sure it's expensive now but that's not the big picture, the point is once those costs are no longer so necessary or so extensive they'll reap the benefits. From 0% market share to almost 30% market share and 50,000,000 consoles sold (not to mention generation to generation they've doubled their console sales and increased their market share by 200-300%) in a decade is a pretty substantial feat, especially given the competition.

 

[tokie]

Wow, what a shocker. Microsoft using monopoly rents to subsidize "innovative" ventures in other fields. This company should have been broken up years ago by the DoJ.

As for the Xbox, I see it as a way for Microsoft to ensure the continuing dominance of DirectX. Things like Steam for Mac are a threat to Microsoft, so anything that protects the Windows ecosystem is worth subsidizing because it would protect their monopoly profits.

 

[lothar]

Wow, what a shocker. Microsoft using monopoly rents to subsidize "innovative" ventures in other fields. This company should have been broken up years ago by the DoJ.

As for the Xbox, I see it as a way for Microsoft to ensure the continuing dominance of DirectX. Things like Steam for Mac are a threat to Microsoft, so anything that protects the Windows ecosystem is worth subsidizing because it would protect their monopoly profits.

Microsoft isn't a monopoly.
Linux is freely available for anyone that wants it.

 

[preslove]

Skype investors are gonna make a bunch of money.
http://online.wsj.com/article/SB10001424052748703864204576315501698635160.html
My favorite part is that this idiotic mistake is saving ebay from their original mistake:

EBay, which initially lost money on its Skype acquisition, will end up with a sizeable profit. In 2005, the company paid about $2.6 billion for Skype and subsequently laid out another $530 million in earn-out payments. It later took a $1.4 billion writedown of the investment in 2007. Two years later, the online marketplace sold a 70% stake in the company for $1.9 billion to the investor group. After the Microsoft purchase, eBay's 30% stake will be worth approximately $2.55 billion. It will also receive an additional $125 million for a loan it gave to Skype's investors.

An eBay spokesperson said the deal "gives our shareholders a strong return of approximately $1.4 billion on our original investment for a dynamic business that simply wasn't core to our focus on global payments and commerce."

Skype Deal Is Unlikely to Pay Off for Microsoft
http://www.nytimes.com/2011/05/11/business/11views.html
The best bit:

When Skype filed for an initial public offering late last year, a $5 billion price tag looked optimistic. Microsoft is paying almost 10 times revenue. Even Google trades at only a bit over five times. Put another way, Mr. Ballmer is paying more than 400 times last year’s operating income.

Mean Street: 8.5 Billion Reasons To Fire Steve Ballmer
http://blogs.wsj.com/deals/2011/05/11/mean-street-8-5-billion-reasons-to-fire-steve-ballmer/
I agree. Ballmer needs to go.