Entering text into the input field will update the search result below

Microsoft Acquiring Skype: Winner or Loser?

May 11, 2011 5:25 PM ETMSFT
ddines profile picture
ddines's Blog
1 Follower
Please Note: Blog posts are not selected, edited or screened by Seeking Alpha editors.
This was originally posted at acgresearch.blogspot.com/2011/05/microsoft-acquires-skype-winner-or.html.

It was not a surprise to anyone when Microsoft announced today that it was buying Skype for $8.5B. Based on reading the volumes already written about the deal in the blogosphere and the general press, there is general agreement that Microsoft paid too much in an effort to keep Skype out of Google’s hands, but little
I see three possible scenarios for this deal:

Clear Loser -  Where customers and revenues shrink, market share declines sharply and profits are elusive. This would be the result of micromanaging the product, ignoring customer feedback, adding worthless features, insisting that developers to force fit Microsoft technology into the product, devising confusing bundles, and finally, overcharging. There are very low barriers for customers to switch services, so this is a distinct possibility if they get fed up with Microsoft.

Clear Winner - where revenue and market share continue to grow, and it turns a healthy profit. This would be the outcome of Microsoft making smart moves: allowing it to operate independently, providing the capital and marketing muscle to grow the business, providing new growth outlets (for example, Xbox/STB integration) and discovering profitable business models.

“Walking wounded” - where the service grows modestly, and makes some money but does not outpace the market.
The “walking wounded” scenario has the highest probability for a number of reasons. Skype has good brand recognition and loyal customers (for the free service anyway) who will continue to use the service as long as it remains free. Microsoft has interesting opportunities such as embedding Skype into the Xbox to deliver an integrated voice/video gateway for the home, or integrating enterprise UC systems with Skype. It may capitalize on one of these opportunities, but will unlikely run away with the market. Even though Microsoft has a track record of mishandling acquisitions, squashing innovations, and misreading the online market, it is learning from mistakes and is unlikely to make fatal decisions. Though, I seriously doubt that it is capable of developing a profitable online business model.
Bottom line, if my prediction is right and Skype limps along in the profit area, then Microsoft made a bunch of wealthy people in Silicon Valley a lot wealthier at the expense of its shareholders.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

Recommended For You

To ensure this doesn’t happen in the future, please enable Javascript and cookies in your browser.
Is this happening to you frequently? Please report it on our feedback forum.
If you have an ad-blocker enabled you may be blocked from proceeding. Please disable your ad-blocker and refresh.