Industry questions whether software giant is overpaying for Internet telephony provider.
Microsoft plans to take over Internet telephony specialist Skype in a multi-billion-dollar deal that could be confirmed later today, it emerged on Tuesday.The software giant will pay a staggering US$7 billion-$8 billion for Skype, according to the Wall Street Journal which broke the story citing “people familiar with the matter”. Microsoft and Skype have yet to comment on the report.
Despite the initial shock from the industry – Skype was widely tipped as a takeover target but Microsoft had previously not been named as a likely buyer – the logic of the deal quickly became evident: Microsoft will be able to integrate Skype's Internet calling service into a number of its product lines. However, eyebrows were raised over the price of the deal, which does not seem to reflect Skype's recent struggles to monetise its business.
Skype posted a net loss of $7 million in 2010 on revenues of $860 million, although admittedly those numbers were an improvement on 2009, when it reported a $418 million loss and revenues of $719 million. The company has a strong subscriber base: its registered users number 663 million. However, the problem is that many of those customers use Skype's free services. Its paying customers are growing, but at the end of last year average monthly paying users stood at just 8.8 million.
For Microsoft the synergies are clear. Integrating Skype into its gaming systems, Xbox 360 and Kinect, will give it an extra dimension, while bringing Skype and Microsoft's Office software together could facilitate new collaboration tools. The situation in the mobile space is less clear. Doubtless Microsoft could incorporate Skype into its Windows Phone operating system, but there are doubts over whether mobile service provider customers would be in favour of that.
Is that extra dimension really worth as much as $8.5 billion – the deal also includes the assumption of $686 million in debt – to Microsoft?
If the deal goes ahead as outlined it will certainly be good news to one company.
Skype's former parent and existing 30% shareholder eBay stands to make money from the transaction, which is something of a turnaround given that its
