Is Microsoft Buying Skype a good deal?

Absolutely. Positively. Yes. It would have been a good deal at twice the price. Well, maybe not twice the price but it would be hard to overstate how good of a move this is for Microsoft.

If you read TechCrunch or other similar blogs, you’ve no doubt read plenty of negative comments about MS overpaying. The argument is that Skype took money recently at a ~2 Billion dollar valuation, so how could it be that the company is now worth 4x as much? Some of these posts incorrectly point out that MS had no competition to buy Skype, so it overpaid by virtue of that fact alone. This is all poppycock. MS STOLE Skype for 8.5 Billion. Here is why…

Reason 1: They had to do SOMETHING. Microsoft’s growth has waned in recent years. True, they still make tons of money. But anyone with a brain and a keyboard knows that their fortress is becoming more and more vulnerable by the day. As I type this, Google is launching their Chrome OS and if their seige on mobile (via Android) is any indication, Windows is not safe in the long haul. I doubt MS Office will be obsolete any time soon, but with the speed of technology (and the willingness of young consumers to try new technologies) it is foolish to think that MS is in a safe position in ANY sector right now.

Reason 2: They get a bigger value from Facebook. One of the most asked-for features in Facebook is video chat. Seems like a no brainer. Many people think that FB building something like Skype would be easy. ANd it probably would be easy. But getting it to “play nice” with 600 million near-synchronized users is a MASSIVE undertaking. Would it cost less then 8 Billion to build? Probably. Would it happen overnight (like a Skype integration)? Not even close. And since MS is a big investor in Facebook, leveraging their new video-conf toy in to FB only makes that investment go up and makes their partnership even more entrenched. Hitching your wagon (or part of it) to the hottest tech company on earth is typically a good idea.

Reason 3: Phone calls. 10 years ago, almost all phone calls were made via “land line”. 5 years ago, VOIP had gained major traction. Now, there are countless applications that allow people to use their cell phones to make calls via 3G and 4G connection – using data instead of “carrier minutes.” It’s only a matter of time until ALL phone calls are done this way. And now MS controls the largest, most proven pipe for those calls.

Reason 4: Facetime. Windows Phone 7 is about to get a built in experience like the iPHone’s Facetime. And the experience is likely to be REALLY good (unlike Qik on Android). One of the main selling points of the iPhone 4 was Facetime, and while new technologies will bring new bells and whistles to the next generation of phones, MS has to feel pretty good about having the pieces in place to deliver on a video-call experience on mobile phones.

Reason 5: Cisco. Most people don’t realize (1) how big the teleconference sector is and (2) how much MS has invested in this sector. While their current technologies are nice, the addition of Skype allows them to play even better in conference rooms around the world.

Reason 6: Integration. Google and FB have been angling to be the “one stop shop” for the web for consumers. The SKype addition signals the same move in the enterprise for MS, in my opinion. In fact, I continue to believe they should buy RIM to take advantage of RIM’s solid enterprise footprint and patent portfolio. While Google and the iPad are trying to pull in some enterprise business for themselves, MS just took a major leap forward in integrating a person’s “work” identity with their entire work day. From phone to email to office documents to a conference call to a webinar, a person can have a single sign in across all MS products and truly power their entire business-day without ever leaving the MS platform. THAT is powerful.

Reason 7. The Guys at Techcrunch hate the deal. That, above all the reasons above, is enough for me.

But what about the objections being stated? Well…

1. MS could have built their own version for less then 8.5 billion. Maybe, but they also got 600 million users with it, or basically $12 per user. Consider: Facebook is valued at 70 billion $$ for 600 million users. People are focusing on Skype’s monetization strategy and the price without focusing on the users. In other words, I’d be willing to bet that if I called up my buddy Mark at FB and said, “I’ll give you 600 million users for 8 billion bucks..” he’d be interested. And if I called up my pal Larry at Google, a company that has been trying (and failing) to get in to social with the same offer, he’d practically come through the phone with a satchel of cash. (WHich of course begs the question of why Google didn’t bid seriously for Skype).

2. There were no other serious bidders! Of course there was. His initials are I.P.O. Skype was going to go public, and once that happens the takeover price would have been even higher. MS had to make a bid that got the board to halt the IPO plans and take them seriously. Mission accomplished.

Kudos to MS for having the cajones to go after something that could pay HUGE dividends for them in the future. If they are able to spin Skype in to a “hit” for ANY of the reasons above, this acquisition will pay for itself. And if they hit on all of them, well, they have a real chance to reemerge from their Steve Balmer-led slumber.


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