The variety of opinion about Microsoft's $8.5bn acquisition of the internet telephony service Skype is extraordinary. It's good for the Xbox; it willbeef up Office with unified communications; they're doing what?; they'reout of their minds.
This $8.5bn is serious: it's cash, not stock. Even for Microsoft that's a lot of money – more than a sixth of its cash hoard. One possibility, given that Microsoft has said it will keep Skype as an independent division, is that Microsoft wants the people. Are they trying to lock up all the creative talent? I think the answer to that one has to be a very strong: don't be silly.
Let's go back 30 years to 1981, when the first PC was launched. Microsoft was a couple of guys selling copies of the programming language Basic. The gorilla of the industry was IBM, and there were three companies who dominated the landscape of American technology research: IBM (Watson), Xerox (Parc), and AT&T (Bell Labs). All three produced legions of inventions that changed the world, though they did not necessarily turn into products for those companies. Most famously, the first Apple Mac's interface was largely based on a demonstration built at Parc, which Steve Jobs saw on a visit there. But also: desktop publishing and ethernet, the stuff that connects billions of computers around the world into networks, were invented there. Those inventors, frustrated by their inability to get Xerox to market their inventions, left to form Adobe and 3Com (now part of Hewlett-Packard).
Because that's the thing: really smart, skilled people have exceptional job mobility: they can leave knowing that when and if they need an employer, they will be snapped up. At any given time, there are a handful of companies where talent congregates. IBM, HP, Apple, Microsoft and latterly Google, have all had their moments when they seemed to be hiring everyone in the universe. And each has had times when they were very clearly the place to be if you wanted your ideas to have a real impact on the world and wanted to be able to cluster with the best of the best. But nowhere gets to keep all that talent for very long. Corporate researchers move into academia; academics form companies; former entrepreneurs back new ideas and startups; and every year new kids learn to code and come up with ideas. And that's without mergers and acquisitions, whose effects on the staff of acquired companies are unpredictable in the extreme.
Skype's 640 employees can't really be why Microsoft wants to pay a little more than one-sixth of its hoard of cash for an internet telephony/desktop videoconferencing/social networking company with persistent quality problems and a poorly designed contact management interface. The motivation also can't be financial: Skype lost $7m in 2010. Most of its 124 million users a month stick to the free computer-to-computer calling services; 8 million pay it $860m in annual revenues for services such as inbound telephone numbers and outbound calls to the telephone network. The brand name surely can't be worth that much; Skype's only real lock-in for users is that it's free to call other Skype users.
But there is a precedent: Microsoft's purchase at the end of 1997 of the then two-year-old service Hotmail, for $400m. At the time, that was a lot of money and Microsoft's biggest acquisition to date, all for a free service with 9 million subscribers. But it was the era of "get big fast" and worry about revenues later, and Microsoft had come rather late to understanding the importance of the internet. Buying Hotmail put Microsoft in the game to compete with AOL and Yahoo (Google would not be incorporated for nearly another year).
Similarly, buying Skype redraws the map of today's competitive landscape. Microsoft, Google, Facebook and Apple are all taking slightly different routes to be consumers' gateway to the digital world. Back in 1997, when portals were all the rage, every competitor had to have news, directory/search, and free email. Today, to stay in the game, each apparently must have an entry in each of desktop, messaging/email, search, media, mobile telephony and social networking.
But $8.5bn? I would guess that right now the people at eBay who (even they admit) overpaid $2.6bn for Skype in 2006 are the happiest people on earth. At last, they get to not feel stupid any more.
Original Article from Guardian.
Also see Why did Microsoft buy Skype? Part-I