I rarely post about the same company twice in a row, unless it is a part I/part II series. And, unlike many, I have no fundamental issues with Microsoft. Steve Jobs once said that Microsoft “has no style.” It may be true, but they sell products that billions of people (and millions of businesses) voluntarily buy; I have no direct issues with them.
But, after last week’s “kvetch” (no better word) about Google Apps, this week Microsoft reportedly bought Skype for $8.5BN.
The last time Skype was bought, either for its technology or its userbase, was back in 2005 when eBay bought them for $2.6BN. At the time, there were two theories: either eBay wanted a quick way to get buyers and sellers communicating (presuming, of course, that the email system then in place was insufficient and voice was all that was missing to increase auction deals); or eBay wanted the 57MM users, which would help eBay with its then-stalled growth, a price of $45.6 / user. From that perspective, it is one expensive lead generation system; most lead sales companies would kill to get those kinds of numbers. In the end, two years later, eBay took a $900MM write-down on the acquisition, and two years after that sold it to an investor group for around $2BN. They ended up OK on the deal, but assuming they invested anything serious in the intervening years, they probably lost money (and a lot of face).
Now Microsoft is buying them for 3+ times that amount. The current number of users is not public, but as of a little over a year ago it was over 600MM. Using that number, the acquisition cost per user is $14.17/user, a significantly better deal than eBay received. More importantly, the landscape has changed. Microsoft has become a staid, non-growth (but still cash-cow) company, and its Windows Mobile division, whose Windows Mobile 7 was released to its first-ever positive reviews but miserable market adoption, is fighting for its life. Microsoft may very well try to use Skype to have some exclusivity to resuscitate Windows Mobile, and perhaps even provide a way around the carriers. If it does, Skype on Android and iPhone may get pulled sooner rather than later. Microsoft has used such tactics before, and would be within its rights to do so again.
I wouldn’t count on it, though. The app markets on both platform are diverse enough that alternatives can and do exist. Skype is easiest, but expect something to fill the gap quickly. This is a great deal for Silver Lake, Andreessen Horowitz and other Skype investors, but I doubt it will be so for Skype users and for Microsoft.