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Microsoft's $8.5bn payout for Skype hints at mobile desperation

Questions arise beyond the hefty price tag
Thu May 12 2011, 13:02

FLASHING THE CASH to purchase Skype hasn't helped Microsoft dispel doubts about its long-term mobile and messaging strategy.

Microsoft's elite probably thought that its decision to splash out £5.2bn for Skype would be welcomed by the industry as a sign of bold action in the mobile market. After all Skype is still the most recognisable brand in voice over IP (VoIP) communications and Facebook has been posturing towards launching its own VoIP services, just as we predicted last year. So why did Microsoft's share price fall on the announcement?

Make no mistake, Microsoft's decision to buy Skype is a good deal, but only from the point of view of Skype's investors. The perceived view is that $8.5bn is too much for a company that barely turns a profit, and was palmed off by Ebay at a cut down price barely a few years ago.

Commentators that have come to the support of Microsoft seem to paint a picture of a deal that is one-sided. Forbes sought to prop up Microsoft's case for buying Skype by saying that Skype's investors preferred being bought out rather than going to an initial public offering (IPO).

For months rumours had been swirling that Skype was preparing for an IPO. It started by limiting third party access to its overlay, a move that was widely seen as safeguarding any sources of revenue from its subscribers. However the $8.5bn question is that even with millions of users, just how many people pay to use Skype? Not many, and any apprehension on Skype's part to go to an IPO was largely due to that question.

In its most recent quarter Skype generated profits of just $7.6m, and even though it is 2011, people still remember dotcom bubble valuations all too well. Forbes even applauds Skype's bankers and lawyers for getting such a high sale price, saying, "Credit Skype's bankers for then getting Microsoft into the mix and trumping both Google and Facebook for the $8.5bn deal."

One of the golden rules of negotiation is that all parties should reach a common ground that doesn't seem to favour one party over all others. It is clear as day that Skype not only avoided having to go down the tricky IPO route but managed to sell itself to Microsoft, a firm desperate to get a foothold in two major markets, messaging and mobile. µ


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