I like to think that if a company is prepared to shell out $8.5bn to acquire another business, the reasoning for such a bold move should be concise and easily explained in a single sentence. Especially if the price being paid, is widely agreed to be above expectations. It’s not as this is a particularly radical expectation. After all, if you or I decide to spend a significant amount of cash on something, we usually a primary logical reason for our actions, even if there may well be additional benefits to the transaction.
My initial reaction to the news of Microsoft’s acquisition of Skype was “how much?” It’s fair to assume that I probably was not alone. The fact is that Skype has never turned a profit. It was only worth $2.5bn when eBay bought it in 2005 and around $3.92bn when eBay sold 70% of its stake to private equity investor Silver Lake in 2009 for $2.75bn. While two years may well seem like an eon in the technology business, a near 117% increase in value is pretty spectacular.
The general feeling seems to be that buying Skype will give Microsoft a boost in its battle against Google and Apple. Well, it’s certainly a bold move on that front, even if most of the ‘boldness’ for those of us on the outside comes from the amount of cash Microsoft is prepared to pay rather than, necessarily, the technology it has acquired. And if it is true, it says something about just how much of a threat Microsoft perceives Google and Apple to be that it is prepared to pay so highly for the privilege.
That clearly wasn’t Microsoft’s line on the day of announcement. The main theme seemed to be how nicely Skype would connect with Microsoft devices like Xbox and Kinect, Windows Phone and a wide array of Windows devices. microsoft also announced that they would connect Skype users with Lync, Outlook, Xbox Live and other communities. Microsoft CEO Steve Ballmer added: “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.”
At the official press conference, he pretty much rehashed that line until it began to sound like there wasn’t an area of the Microsoft business where Skype couldn’t play a role. This made me wonder why Microsoft didn’t just buy Skype a few years ago, say in 2005 or 2009, when the price would have been a lot cheaper and they could have saved themselves a chunk of cash.
Anyhow, once Ballmer had finished his spiel, it was Bates’ turn. A fascinating aspect of his speech was that Microsoft was hardly mentioned until the last paragraph when he said: “The exciting opportunity is ahead of us in terms of the way that we can interact with the key assets of Microsoft, whether it’s Xbox Live, whether we start to talk about some of the end devices.”
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