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Microsoft Buys Skype for $8.5B

May 10, 2011 8:39 PM ETMSFT
Peter Hix profile picture
Peter Hix's Blog
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Seeking Alpha Analyst Since 2011

I am a student at Brown University and a member of the Brown Investment Group. I have always had an appreciation of the stock market and have followed its development since high school. I have recently gotten in the game for real, whereas before I simply invested virtually (with MarketWatch's Virtual Stock Exchange). I have a bias towards long-term investing and the consumer cyclical sector. Currently I am an intern at an asset management firm and I hope to eventually work at a hedge fund once I graduate.
This morning Microsoft (MSFT) announced that they would be acquiring Skype, the VoIP company based in Luxembourg, for $8.5B.  Skype is synonymous with video chatting these days as they have expanded their user base by leaps and bounds since they started in 2003.  They are reporting 124 million “connected” users as of the second quarter 2010.  I think what they mean by this is they have 124 million active users rather users like me who use it to Skype with my parents every other week (month).  Microsoft and Skype hosted a conference today that laid out the plans for the “Microsoft Skype Division” that will go into effect once the deal is given the nod by all necessary regulatory committees.  Mr. Steven Ballmer, CEO of Microsoft started the press conference off with a nice, if precocious, opener.  

“Today is a big day for Microsoft and Skype as well as consumers and business around the world. By bringing together the best of Microsoft and the best of Skype we will empower people around the world with new technologies that should bring them closer together.”

The deal will open up a whole new world of possibilities for both companies by tapping into the Xbox community through the integration of the kinect and Skype video calls.  Another possibility is Windows phone integration, which might finally make the Windows Phone relevant.  One of the biggest concerns was whether current Skype users would be treated as second class citizens after the deal, particularly iOS users.  Fear not, said Mr. Ballmer, “[Microsoft] is committed to the Skype user base today and into the future.  We want to continue to build and engage that base...as Skype is doing today.”  
In addition to the consumer base, Skype could be incorporated into Microsoft’s bread and butter - its line-up of business applications.  Mr. Ballmer mentioned Outlook and Lync, Microsoft’s enterprise collaboration tool.  People have been saying, not untruthfully, that the acquisition of Skype is the only thing keeping Microsoft relevant, providing that they are innovative about the way they integrate Skype into their communications network.  Oh, and don’t worry about Mr. Tony Bates (Skype’s CEO), he will be in charge of Microsoft’s eventual Skype Division.  

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