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Microsoft Buy Skype for £5 billion

Thu 12 May, 2011 // Firstnumber Team

In the company's largest acquisition to date, Microsoft's £5 billion valuation of Skype may seem somewhat excessive to many industry commentators. The VoIP tool has become synonymous with online communications, with “Skype-ing” entering into our social lexicon in a way strikingly similar to Google.

For all its branding success and user championship of Skype, it has so far failed to turn over a profit. The service has been taken advantage of by some 663 million members to date, offering an easy to use and free alternative to telephone calls or other paid services.

The deal will see the creation of a distinct Skype business within Microsoft, the imaginatively labelled Microsoft Skype. Tony Bates is to become the president of the venture, with the current Skype Chief Executive reporting directly to his Microsoft counterpart Steve Ballmer.

The purchase of Skype for some £5 billion trumps the previous acquisition of advertising company aQuantive in 2007 for a sum of just over £3.5 billion.

For many, Skype has become an integral part of their communicative activity, whether as a means of keeping in touch with distant friends and relatives, or as a cost effective business strategy on a corporate level. However, the deal does not make sense to everyone, with Forrester Research analyst Andrew Bartels insisting that:

“It doesn't make sense at all as a financial investment...There's no way Microsoft is going to generate enough revenue and profit from Skype to compensate.”

In the face of such reservations, Microsoft has its work cut out to prove that the monetisation of Skype is a feasible project. It is believed by some commentators that Bill Gates hopes to offer the VoIP tool as a free bolt-on to their Windows OS to entice a wider customer base.

Whatever the outcome, the simple association with the Skype product and brand would be enough for any company to pay over the odds for such a service. In terms of the Microsoft image and reputation, this deal could be make or break according to many industry experts: whilst the association with Skype may be highly beneficial, any attempts to alter the simplistic and much loved nature of the Skype product could be disastrous for Microsoft.

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