Microsoft today purchased the king of VoIP, Skype for over $9.5 billion in cash. Some critics have called the deal grossly overpriced. Skype had been the subject of takeover rumors for the last several months with both Facebook and Google mentioned as possible suitors. This is Microsoft’s largest purchase to date. Skype has 600 million registered users. Over 170 million people regularly use Skype each month to make free phone calls computer to computer and very low cost calls from computer to land lines.
Skype was started in 2003 by Niklas Zennstrom and Janus Friis, of Kazaa file sharing fame. The company was purchased in 2005 by eBay for $2.6 billion. eBay was unable to capitalize on the purchase over the next several years and sold off a 70% stake to a group of technology investors in 2009.
What are Microsoft’s plans? Skype reportedly will become a new business division in Microsoft, where the tech giant plans on integrating Skype within the Office suite of programs enabling businesses to communicate better between offices. There is also talk of integrating Skype with Microsoft’s Kinect system of tracking user movement for games and someday office tasks.
What is interesting to keep in mind is both the scope and the pricing of the deal. Microsoft is buying an online phone company that practically gives away all of its services. Compare that to the recent history of Qwest/US West. US West, the smallest of the baby bells from the breakup of AT&T in 1984 was purchased by Qwest Communications in 1999 for $34.7 billion. With the proliferation of alternative online options, poor customer service, and insider trading irregularities, Qwest was purchased in 2010 by CenturyLink for $10.6 billion. Qwest has close to 30,000 employees, Skype has around 1,000. Still think Microsoft overpaid?
