Editorial

Why Microsoft needs Skype

It was only a matter of time before Skype sold itself to the highest bidder. As multiple communication technologies continue to coalesce and converge onto singular and all-inclusive platforms, it would be abnormal for Skype to keep existing as a standalone VoIP service that also has a side business in cheap VoIP-to-phone calling rates. It may be big, but Skype realized that it may have a brighter future as part of a larger conglomeration of technologies. As the bidding war ends, and one company comes out on top, the question on everyone’s minds now is: Why Microsoft?

Well, for starters, look at the competition. Google is in the process of rolling out its trump card in the mobile instant messaging game, Google Voice and Video Chat for Android. A natural converging progression of its continued interest in VoIP services (see Google Voice), Voice and Video Chat -- assuming the product makes it out of being an Android 2.3.4 exclusive service – is basically foisting pseudo-VoIP capability onto its devices. There’s no telling if the carriers will allow such functionality on their networks, and we’ve seen from Apple’s Facetime “only over WiFi” scenario that this is more than possible. Nevertheless, it’s a strong move on Google’s part, especially since you can use your phone to chat with PC users. This makes all those front facing camera phone purchases worth it, even if your friends and family are stuck with only rear cameras. Apple, with Facetime, was already miles ahead of the game when they released this late last year for both iOS and Mac OS.

Microsoft, still faltering in the early stages of WP7, needed something to give them a leg up in this very important technology space. For a marketing platform that’s trying to make up for the KIN’s abject failure by promoting the social aspects of the OS, it’s vital to get mobile video (and voice) chat up to speed with the competition. It also needs to hit the ground running. Both Apple and Google have established and mature products to drive mobile A/V communication and further blur the lines between mobile device and PC. With WP7 still hot off the presses and barely beginning its update cycle, now would be a horrible time to debut a brand new communications product on a platform that is hardly mature and solid enough to handle it. There’s no question that Skype will become standard on WP7 devices. The only real question is if and how it’s going to implement Skype video calls. Like we saw with Facetime, it’s not so simple to get carriers to agree with free video chat over 3G networks.  Google has only released Voice and Video chat to an extremely small subset of its Android devices (Nexus S devices that will be first to upgrade to 2.3.4). There’s no telling what the carriers will say to future expansions of that product. Microsoft will likely face the same hurdles.

Microsoft also needed Skype to really tie down its collaboration plans for the Office suite, Lync, Xbox Live, and other connected products. Microsoft has shied away from implementing its usual policy of fully integrating and subsuming its acquisitions into established bureaucracies and operations, opting instead to create a separate Skype business unit headed up Skype CEO Tony Bates. This means that Skype won’t become just another Microsoft technology that used to be a distinct entity. We’ll likely see the Skype brand plastered across Microsoft products and services, with Skype functionality heavily integrated into existing products, like Outlook, Social Connector, and Xbox Live. Looking across the spectrum of Office desktop and mobile products, there is a lot of potential for a service like Skype to become the glue that creates a nice backend to all the various social tools.

It’s interesting to note that the competing bidders had little to no stake in actually going through with the purchase of Skype. Google is going its own way in the VoIP department, and is well on its way to becoming a major player in that realm with Google Voice and Android. Facebook, while in need of a video chat service, actually gains a lot from Microsoft winning the auction. After all, the partnership that Facebook and Microsoft agreed to late last year ensures that Bing will become an integral part of the Facebook experience. You can bet that Skype will become a ubiquitous presence in Bing searches, which means Facebook will get some of that action. It’s been speculated that Microsoft’s bidding opponents simply knew very well that Microsoft needed Skype to stay competitive in the voice communications arena, and they knew Microsoft would pay a lot of money to get that edge. The competition wasn’t going to let Microsoft get Skype without paying a hefty fee for it, and a hefty price it was indeed. This acquisition becomes the most expensive Microsoft has engaged in to date, and for a commnuications product that hasn’t proved itself to be profitable in an enterprise setting, a setting that Microsoft is sure to be aiming the new Skype at.

And profitability, ultimately, is what Microsoft needs to accomplish with Skype. While they do gain a hefty 600 million Skype users to squeeze revenue from, Skype has always been about a free service with a very cheap micro-transaction based VoIP service for its heavy users. While Skype will be useful to Microsoft in converging some of their social and collaboration tools, how it is going to profit from Skype is a question that remains unanswered. While purchasing Skype seems like an obvious move for a company looking to expand its social communication functionality, the bottom line will ultimately decide the sustainability of the largest purchase in the Microsoft’s long history. 

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im "surprised" about idiotic comments and articles like "they wont drop osx/ios support" duuh its logic. i even liked a guy saying he cancelled 2 skype accounts and removed skype from all his computers... people really like to make so much drama about it. now skype is "worthless, ugly, crap.. they will make worse the ui with ribbon (even they havent used it, and of course windows live messenger doesn't have one)"... and why wasnt like that before ms bought it? because people is sooo dramatic about it.

i still think ms needs skype for alot of reasons, yesterday my friend and i tried to webcam on wlm, she is on mac, and im on windows, until she doesn't get a new comp which wont be mac since she hates it and is tired and think is crap, and after trying windows 7 she loves it (her mac had vista), it didn't work, she hates how there isn't a decent windows live IM for mac. from amsn, to msn on mac, to trillian... nothing works the same. since i saw wlm for mac could work the video calling we tried and it didn't work. so we ended up using imo.im
so skype will be like the easier way to bridge all devices, of course some stupid peeople will say alot of crap about how msn will drop support and how it sucks and how they will not use it, and how now facetime when it comes to windows if ever happens will make skype fade... bla bla.
but it would work good, of course microsoft stuff will get benefits since they bought it, but if people weren't so silly, caring so much about microsoft and how now it sucks just because of that... maybe this world would be better. you know people insulting each other for what? companies that dont give anyone anything more than what you pay for?
i hope this deal will be good, yeah i never felt interested in skype till now, when microsoft owns it because i like microsoft, if people dont.. whatever, but people should calm down and stop thinking about skype deal like "omg... i will die, so i will delete it and never use it because... well... because microsoft, skype worked for me, but now it wont, because it will not say "skype limited" anymore... that name makes my calls better than microsoft"

Microsoft doesn't need Skype as a stand-alone product to be profitable.

Skype will be part of a larger ecosystem. One thing in there that adds value, getting customers to buy into the whole Microsoft ecosystem as a whole.

Winning Guy said,
Microsoft doesn't need Skype as a stand-alone product to be profitable.

Skype will be part of a larger ecosystem. One thing in there that adds value, getting customers to buy into the whole Microsoft ecosystem as a whole.

Absolutely. Integrate what they now own into their other offerings; XBOX (probably via Kinnect, although they could go the Steam route and just use the voice protocol for an improvement), WP7, Lync (or maybe some form of Outlook plugin?) ... they've loads of options. Skype seems like it's a good fit for MS, in my eyes.

For some reason, I'm actually looking forward to the changes microsoft might make to skype. But it still sounds crazy how much they paid considering skype doesnt really make that much money and for some reason they're always a) at a loss, b) being sold.

Remember when MS seemed to be the only company with the guts to go after Skype's hardware offerings with something competitive?
http://en.wikipedia.org/wiki/Windows_Live_Call

And way back in the day, MSN Messenger offered PC-to-Landline service for a fee. Built-in to every client.

It's this kind of background that makes Tzvi's suggestions that MS offerings just weren't mature enough kind of laughable. Does an expert who has repeatedly faltered in a market segment magically turn things around buy getting advice from someone who has merely faltered in a bigger way?

The MS purchase is about mobile footprint and IM unification. That's what makes it worth it. After the inevitable interop feature is complete, MS will preside over an IM/VoIP network almost twice the size of Google's. That makes MS the new global telecomm on the block.


That was then, this is now. As far as products that Microsoft currently has in the market, there is nothing that is more mature than Facetime or Google Chat (or iOS and Android, depending how you look at it). Does MS have the capability to start the Live Call program again? Maybe. But that takes time and a lot of resources, resources better spent on an already successfully entrenched product and 600 million users.

Nevertheless, I totally agree that this is primarily about IM unification across both the consumer and enterprise fields.

Tzvi Friedman said,
I totally agree that this is primarily about IM unification across both the consumer and enterprise fields.

I'm in agreement as well.

dotf said,

I'm in agreement as well.

This purchase also had to do with not allowing competition (Google, etc) to obtain it which is why the money was so good for purchasing.

I'd consider paying for occasional Skype calls if I could pay in Microsoft Points. It will be nice having such a wide install base that I can call pretty much anyone I know on their own Skype client though, negating the need for a fee whatsoever.

I'm glad to see they will make Skype a division. Imo, it gives the brand a boost and should provide the autonomy needed to retain its cross platform appeal (as long as those platforms don't try to block it). This is probably one of the top reasons for their interest in Skype. And it might be something they will leverage in the future to sell Kinect hardware beyond XBox.

In the short term, Office 365 and Bing will probably see initial integration. This should make Office 365 even more attractive by broadening Lync IM/Voice reach and provides a sales channel for Skype Connect (possibly SkypeIn/Out). Bing/Online should also benefit from the new advertising relationship.

On the mobile front, Skype will for sure offer enhance voice services similiar to the GV/Sprint deal. And that added value would give WP platform a boost. Imo, having Skype/Voice in their arsenal should encourage mobile operators to partner/work with them more as opposed being target for disruption.

Is the acquisition expensive, yup...but Microsoft's competive position has improved too.

JohnCz said,
I'm glad to see they will make Skype a division. Imo, it gives the brand a boost and should provide the autonomy needed to retain its cross platform appeal (as long as those platforms don't try to block it). This is probably one of the top reasons for their interest in Skype. And it might be something they will leverage in the future to sell Kinect hardware beyond XBox.

In the short term, Office 365 and Bing will probably see initial integration. This should make Office 365 even more attractive by broadening Lync IM/Voice reach and provides a sales channel for Skype Connect (possibly SkypeIn/Out). Bing/Online should also benefit from the new advertising relationship.

On the mobile front, Skype will for sure offer enhance voice services similiar to the GV/Sprint deal. And that added value would give WP platform a boost. Imo, having Skype/Voice in their arsenal should encourage mobile operators to partner/work with them more as opposed being target for disruption.

Is the acquisition expensive, yup...but Microsoft's competive position has improved too.

Office365 will indeed likely see big-time integration with Skype (either ahead of, or simultaneously with, the corporate/enterprise side of Office+Exchange). A missing part of SaaS (Software as a Service), at any level, is an easily-usable/easily-leverageable VOIP product. Every single IP/telephony offering today in the corporate space is proprietary and does not *play nice* with most existing software, and especially not Exchange. (Even the FOSS/LGPL telephony products are no better than their commercial relatives in this area.) Skype+Exchange would change that in a big way. (One company that would certainly bite is already one of Microsoft's biggest customers AND one of the largest SMB ASPs in North America - Comcast. Comcast is an ASP via their Business Class unit, which runs a lot of Exchange hosted servers and services; further, Comcast itself is a monstrous enterprise Exchange customer - however, their existing call center backend software/hardware can't leverage, or be leveraged by, Exchange, because it has to be a custom-written solution due to IP encumbrances. How many other enterprises are in Comcast's position, merely as an enterprise?)

iWilco said,
8.5 billion..... not worth it ....

No matter what people say... I have to agree... The fact that Ebay almost threw them away shows that...

Back then they were worth sub 3bill... I would say mabey 5? but 8.5 is abit overkill...

ccoltmanm said,
How long until Skype pays for itself?

If you think that Microsoft bought Skype, to make profit with Skype only, then you have no clue what you're talking about. Skype will be just part of a much greater plan, it's like the missing wheel of a car; without it is basically useless, with it you're going somewhere.

sbdb said,

If you think that Microsoft bought Skype, to make profit with Skype only, then you have no clue what you're talking about. Skype will be just part of a much greater plan, it's like the missing wheel of a car; without it is basically useless, with it you're going somewhere.

If you think pays for itself and profit are the same thing you don't know what your talking about.

sbdb said,

If you think that Microsoft bought Skype, to make profit with Skype only, then you have no clue what you're talking about. Skype will be just part of a much greater plan, it's like the missing wheel of a car; without it is basically useless, with it you're going somewhere.
LOL What? Where is this somewhere? If you don't know where "somewhere" is, it is a bad decision to invest in anything. Do you know what Microsoft's long term plan is with Skype? How long is it going to take to get the $8.5bn back on their way to this hypothetical "somewhere"?

yowan said,
I hope MS won't discontinue the OSX and Linux versions

They said in their press release that they will continue to support all versions, even for other OSs

yowan said,
I hope MS won't discontinue the OSX and Linux versions
It was one of the reasons they bought Skype.High Interoperatibility. Truly cross-platform. Microsoft is/was actually going to make a MS Lync for iOS and Andriod. If they discontinued Skype for other platforms, some other competitor is going to rise and take the the Throne of ultimate VOIP for every device and reduce the value of Skype. Microsoft just bought itself an Ecosystem(so many OS and devices devices supported). Microsoft now owns the software which is on every device and OS of their competitors(mac, linux, Symbian, Android...). And if MS plays their card rightly, they will have a Monoply in their hands, and they will be in a unique postion then. There's even talk about Microsoft licensing 'their' Microsoft Skype technologies to Apple Facetime and other such companies.
I suggest you read the articles on ZDnet about Skype.

May be Skype in-terms of market revenue is not doing good, but when thing MS products + Skype integration, specially WP7 and incoming Win8, future features and its success looks good to me..

Choto Cheeta said,
May be Skype in-terms of market revenue is not doing good, but when thing MS products + Skype integration, specially WP7 and incoming Win8, future features and its success looks good to me..

That doesn't mean it will be profitable, and the whole crux of this editorial is that buying Skype is part of a strategy to make their mobile products profitable. Giving away a service other companies make money from is not easy.

I think the Skype deal is going to be good for Microsoft in the long run myself. Their "integrated" and "connected" living room/home/office vision seems like it is becoming more and more of a reality every day. Also as others have said video/audio conferencing and streaming is only going to become more and more popular and in-demand as time goes by. I can see how it will work out though nobody knows for sure.

If anything history has shown that all these IM protocols and social networks have a relatively short lifespan. Looking at the Netherlands it was first ICQ > MSN > Hyves+MSN combo > Skype + Facebook combo. Windows Live Messenger is pretty much dead around here. No doubt in a few years that will change once again when something new pops up.

I have serious doubts if Microsoft will ever get their investment in Skype back.

.Neo said,
If anything history has shown that all these IM protocols and social networks have a relatively short lifespan. Looking at the Netherlands it was first ICQ > MSN > Hyves+MSN combo > Skype + Facebook combo. Windows Live Messenger is pretty much dead around here. No doubt in a few years that will change once again when something new pops up.

I have serious doubts if Microsoft will ever get their investment in Skype back.

I agree, but to be honest, IM clients of the past pail in comparison to the capabilities of those today. We are in a super connected world and people are always going to need communicate and with the integration Microsoft is bringing to the table, it definitely has the potential to get users to stick. Facebook isn't going anywhere any time soon, people have invested so much of themselves in it to just leave. Live Messenger isn't going anywhere and is seeing growth with the Facebook chat integration. Skype obviously isn't going anywhere now that Microsoft just poured all this money into it.

I have serious doubt that Microsoft can't get their investment back.

wixostrix said,
Facebook isn't going anywhere any time soon, people have invested so much of themselves in it to just leave. Live Messenger isn't going anywhere and is seeing growth with the Facebook chat integration. Skype obviously isn't going anywhere now that Microsoft just poured all this money into it.

I remember people saying the same about MySpace. Windows Live Messenger / MSN has been on its way out around here for years. Why do you think Microsoft brought support for Facebook chat to its IM software and bought Skype? Skype doesn't offer anything Microsoft couldn't bring to the table themselves. The only interesting part about Skype is probably its user base, not the actual capabilities of the software.

.Neo said,
Skype doesn't offer anything Microsoft couldn't bring to the table themselves. The only interesting part about Skype is probably its user base, not the actual capabilities of the software.

Ahem. Patents. VOIP patents. MS couldn't bring those to the table themselves. This is important when you consider they will integrate a true VOIP stack into their Enterprise Unified Communications Strategy, enhance WLM as well as XBOX Live and Windows Phones.

.Neo said,

I remember people saying the same about MySpace. Windows Live Messenger / MSN has been on its way out around here for years. Why do you think Microsoft brought support for Facebook chat to its IM software and bought Skype? Skype doesn't offer anything Microsoft couldn't bring to the table themselves. The only interesting part about Skype is probably its user base, not the actual capabilities of the software.

If it was all about capabilities, why has it been such a flop in every way Microsoft has tried to implement it? I'm not just talking the IM space (WLM for Windows/Microsoft Messenger for Mac) but the business space (Lync, which is the direct descendant of Groove and Office Communications Server and Sharepoint)? Skype has been perfectly willing to run the consumer-facing end of their business as a loss leader because it's the gateway to the real herd of cash - business users (like wire services, newspapers, TV stations, broadcast and cable networks, etc.). That is, in fact, why eBay originally acquired Skype. Being part of Microsoft almost certainly won't change that aspect of Skype - the consumer end will likely remain free, with the platform support (including OS X and FOSS) remaining unchanged or possibly improved. The reason eBay got hammered is Wall Street's aversion to conglomeration, and Skype was way too far away from eBay's core business - e-tailer/auctioneer writ large. Why do you think the MSNBC deal, and later the original deal which saw NBC acquired by Universal, and the two of them acquired by General Electric, being semi-unwound with the NBCUniversal semi-merger with Comcast? GE had gone too far afield with the NBC acquisition (even though NBC dates back to the roots of GE, as it was founded by then-GE subsidiary RCA shortly after World War I) to suit the investment-advisor community (which has been pushing hard for GE to divest itself of GE Capital for *decades*, and did manage to get GE out of the insurance business, which is now separate company Genworth Financial).

Also, dotf is *right* - the number of unencumbered (by patents) and proven VOIP protocols is basically nil; in fact, other than Skype, all are proprietary in addition to being heavily patent-protected. (The biggest players in the enterprise IP/telephony space all are built around proprietary stuff - Microsoft + Skype can actually do some major damage there by adding Skype support to Office+Exchange. Exchange is solid and proven, as is Office; what's been missing is solid IP communications support at any level. How many *current* IP/telephony products integrate well with Exchange?)

Will Microsoft change Skype? In the short or even medium term, highly UNlikely. (It's simply in Microsoft's best interests to leave the consumer-facing part of Skype completely alone.) However, that won't stop Team Redmond from leveraging the bejeebers out of Skype and its technologies - both hardware and software - on the back end.

"Google is going its own way in the VoIP department, and is well on its way to becoming a major player in that realm with Google Voice and Android"

It really isn't. Years off being near that stage.

Even in corp environments you will find Skype, either officially or unofficially used as the standard communications tool from desktop to desktop. Usually mixed with OCS/Lync.

Google aren't even courting that huge market and consumer it's barely a ripple. It stands more of a chance than Facetime, but that is about it.

Profitability? Skype was nearly 2b in debt for a company that was valued at 2-3b as of 2009.

It will only be a selling feature for devices for years and years with no chance of breaking even in sight,let alone profit.

I think this is reading way too much into it... it's pretty simple when it comes down to it.
MS need to get rid of competition to Lync and Windows Live Messenger, they take the superior nat traversal and voip compression and outward/inward dialling - sell those as services to Lync (and perhaps even Windows Live) customers - eliminated their biggest problem/competition in that field and gained some new tech in the process.

One of the biggest things slowing down Lync (as a PBX/telephony/voip solution) in enterprise is that there is a free alternative, Skype for that kind of stuff...

It's all about big business at the end of the day.

Matt Hardwick said,
I think this is reading way too much into it...
MS need to get rid of competition to Lync and Windows Live Messenger, they take the superior nat traversal and voip compression and outward/inward dialling - sell those as services to Lync (and perhaps even Windows Live) customers - eliminated their biggest problem/competition in that field and gained some new tech in the process.

One of the biggest things slowing down Lync (as a PBX/telephony/voip solution) in enterprise is that there is a free alternative, Skype for that kind of stuff...

You can't use the words enterprise and Skype in the same discussion.

Matt Hardwick said,

One of the biggest things slowing down Lync (as a PBX/telephony/voip solution) in enterprise is that there is a free alternative, Skype for that kind of stuff...

It's all about big business at the end of the day.

Skype is usable in SMB where some remote workers can use it to call cheap, or link it to an existing telephony system to save on calling rates, but it is noooooooway near a product like by example Microsoft Lync, where you have a centrally managed communication system that integrates exceptionally well with the entire business infrastructure.

Matt Hardwick said,
I think this is reading way too much into it... it's pretty simple when it comes down to it.
MS need to get rid of competition to Lync and Windows Live Messenger, they take the superior nat traversal and voip compression and outward/inward dialling - sell those as services to Lync (and perhaps even Windows Live) customers - eliminated their biggest problem/competition in that field and gained some new tech in the process.

One of the biggest things slowing down Lync (as a PBX/telephony/voip solution) in enterprise is that there is a free alternative, Skype for that kind of stuff...

It's all about big business at the end of the day.

Actually, Skype is simply far more reliable than Lync, and has capabilities that Lync (and the preceding Sharepoint and Groove) simply lacks outright.

Further, Skype isn't free for enterprises - that is the source of pretty much all of Skype's revenue stream right now. However, even Skype doesn't integrate well with enterprise-level back-end servers and services - a failing for all current IP/telephony products today at the enterprise level; it's not simply Skype's fault. However, adding Skype support to Lync (and by extension, to Exchange) adds something that businesses of all sizes crave - scalability, up and down. One of the nice things (unless you're IBM) about Exchange is that it's scalable -not only up to enterprise level, but down to SMB level (as ASPs and SaaS providers such as Comcast's Business Class unit are proving). However, there is no similarly scalable VOIP or IP telephony product that plays nicely with Exchange, or even one that plays nicely with Exchange at all at any level. (Why does IBM hate Exchange? Because it has successfully pigeonholed Lotus Notes.)

bob_c_b said,

You can't use the words enterprise and Skype in the same discussion.

"Skype is not an enterprise." See? I just did. Not a problem in sight.

Spending $8.5 billion on a product that has never made a dime, then summing up your piece with a call for profitability? MS are $10 billion in the hole for WP7 and counting, they are bleeding cash on Bing and absent from the tablet space. Your argument only makes sense if video chat via cellular was MS only deficiency, but in this case it's pretty far down the list of what ails Redmond.

Citation required.
Do you actually have sources to back up your ridiculous claims?
Gonna go out on a limb here and say "no".

ahhell said,
Citation required.
Do you actually have sources to back up your ridiculous claims?
Gonna go out on a limb here and say "no".

Skype has never made money, ever, this is pretty common knowledge. There have been dozens of articles showing the price of Skype today And the $1 billion the paid Nokia. And the $500 million they laid out for the launch of WP7. Their own quarterly filings show it cost them $3 for every $1 they earn via the "online and Internet services" business unit, that would be defined as bleeding cash. And they are absent from the tablet space, even MS themselves acknowledge that. At least now I have a citation for what "denial" looks like.

bob_c_b said,
Spending $8.5 billion on a product that has never made a dime, then summing up your piece with a call for profitability? MS are $10 billion in the hole for WP7 and counting, they are bleeding cash on Bing and absent from the tablet space. Your argument only makes sense if video chat via cellular was MS only deficiency, but in this case it's pretty far down the list of what ails Redmond.

troll troll troll... every post of you is a post, go to your apple articles. and stop posting idiot stuff, today i talked to an old friend who had msn... she doesnt anymore and she uses skype instead now. so userbase is expensive...

and second, if you think $750+ million revenue is nothing... then you must be really rich.
and when you release something new you dont expect it to sell like pancakes... well kinect its an exception, but xbox was a "fail" some years ago and see what it is now. bing doesnt even have 2 years old... wp7 has 7 months old. and nokia deal has 4 months... so stop your crap and if you dont have vision that doesn't mean people is as idiot as you

EmilyTheStrange said,

troll troll troll... every post of you is a post, go to your apple articles. and stop posting idiot stuff, today i talked to an old friend who had msn... she doesnt anymore and she uses skype instead now. so userbase is expensive...

and second, if you think $750+ million revenue is nothing... then you must be really rich.
and when you release something new you dont expect it to sell like pancakes... well kinect its an exception, but xbox was a "fail" some years ago and see what it is now. bing doesnt even have 2 years old... wp7 has 7 months old. and nokia deal has 4 months... so stop your crap and if you dont have vision that doesn't mean people is as idiot as you

I'm going to ignore all your personal attacks and misinformation (which really leaves me with one sentence fragment to address), but you really need to know the difference between revenue and profit. Skype has never been year over year profitable, it was a money sink when eBay bought them and it hasn't changed in all those years.

bob_c_b said,

I'm going to ignore all your personal attacks and misinformation (which really leaves me with one sentence fragment to address), but you really need to know the difference between revenue and profit. Skype has never been year over year profitable, it was a money sink when eBay bought them and it hasn't changed in all those years.

Orly?
http://f.cl.ly/items/3a3j3k0m1...-10%20at%208.04.35%20PM.png

bob_c_b said,

I'm going to ignore all your personal attacks and misinformation (which really leaves me with one sentence fragment to address), but you really need to know the difference between revenue and profit. Skype has never been year over year profitable, it was a money sink when eBay bought them and it hasn't changed in all those years.

Skype had an operating profit of $20.6 million in 2010

bob_c_b said,

Skype has never made money, ever, this is pretty common knowledge. There have been dozens of articles showing the price of Skype today And the $1 billion the paid Nokia. And the $500 million they laid out for the launch of WP7. Their own quarterly filings show it cost them $3 for every $1 they earn via the "online and Internet services" business unit, that would be defined as bleeding cash. And they are absent from the tablet space, even MS themselves acknowledge that. At least now I have a citation for what "denial" looks like.

you conveniently avoided giving any fact to your $10B in the whole claim. last time i checked $1B for the nokia deal, if that's even a true figure, and $500M for marketing, doesn't come anywhere close to $10B

i know the difference... microsoft isn't what skype was. microsoft have xbox and kinect and windows OS and hotmail... or you going to say thats not profitable? specially since skype userbase is so big?. so microsoft can get even more benefits from it like with nokia.

for example, do you think softimage was profitable enough like maya or 3dsmax when autodesk adquired it? of course not... of course it wasn't as expensive as maya and their profit obviously wasn't as good (why avid sold it). but you know what? they were strong (technological) and now they are bundling with 3dsmax and maya, people will be like "i want that suite". alone it doesn't sell like maya and 3dsmax but it boost 3dsmax and maya sells for having it bundled/bridged with amazing particle system and such. same with mudbox, same with motionbuilder, match mover, and composite. all in one "cheap" suite that people cant be like "wait... i dont want it" because its just amazing deal and no matter if you choose, maya or 3dsmax you will still pay autodesk. so what i mean its... no matter if something isnt "profitable" enough, you can make smart moves to make your profitable product even better, make your product stronger and have another reason to sell.

i apologize for my comment. it just gets annoying see people who come here who post only negative crap stuff about microsoft, like they cant be like "i dont like microsoft... i will ignore this article"

wixostrix said,

you conveniently avoided giving any fact to your $10B in the whole claim. last time i checked $1B for the nokia deal, if that's even a true figure, and $500M for marketing, doesn't come anywhere close to $10B

Umm, $1b to Nokia, $.5b to launch WP7 plus $8.5b for Skype, what does that equal???

EmilyTheStrange said,
i know the difference... microsoft isn't what skype was. microsoft have xbox and kinect and windows OS and hotmail... or you going to say thats not profitable? specially since skype userbase is so big?. so microsoft can get even more benefits from it like with nokia.

for example, do you think softimage was profitable enough like maya or 3dsmax when autodesk adquired it? of course not... of course it wasn't as expensive as maya and their profit obviously wasn't as good (why avid sold it). but you know what? they were strong (technological) and now they are bundling with 3dsmax and maya, people will be like "i want that suite". alone it doesn't sell like maya and 3dsmax but it boost 3dsmax and maya sells for having it bundled/bridged with amazing particle system and such. same with mudbox, same with motionbuilder, match mover, and composite. all in one "cheap" suite that people cant be like "wait... i dont want it" because its just amazing deal and no matter if you choose, maya or 3dsmax you will still pay autodesk. so what i mean its... no matter if something isnt "profitable" enough, you can make smart moves to make your profitable product even better, make your product stronger and have another reason to sell.

i apologize for my comment. it just gets annoying see people who come here who post only negative crap stuff about microsoft, like they cant be like "i dont like microsoft... i will ignore this article"

You need to look, and understand, what all the divisions of MS are doing. The OS business has shrunk and these new divisions (with the recent exceptions of the Xbox/Devices division) are bleeding money. Long term MS cannot sustain deals where they pay billions for stuff that doesn't have a reasonable return on investment. MS has a problem right now, does none of us any good to ignore it.

VdG said,

Skype had an operating profit of $20.6 million in 2010

Not with a net income of $13 million in the first half of that year and most of that from interest? Cash on hand does not equal operating profits. Read more than the first link in Google.

bob_c_b said,

Not with a net income of $13 million in the first half of that year and most of that from interest? Cash on hand does not equal operating profits. Read more than the first link in Google.

Guys, we must listen to bob_c_b. He obviously knows more than Microsoft's financial sector..

bob_c_b said,
Spending $8.5 billion on a product that has never made a dime, then summing up your piece with a call for profitability? MS are $10 billion in the hole for WP7 and counting, they are bleeding cash on Bing and absent from the tablet space. Your argument only makes sense if video chat via cellular was MS only deficiency, but in this case it's pretty far down the list of what ails Redmond.

so i guess you must think google was stupid for buying youtube because it has not been profitable yet in years even with all those adds plastered on videos.. Its not about making money from skype its about adding value to the things that they already have.. they could release windows 8 w/ skype cooked in, windows phone w/ it built in.. It would be the best move if you want to beat facetime.. Skype is the probably the most well known video service and is a way greater brand then facetime video service..

bob_c_b said,
Spending $8.5 billion on a product that has never made a dime, then summing up your piece with a call for profitability? MS are $10 billion in the hole for WP7 and counting, they are bleeding cash on Bing and absent from the tablet space. Your argument only makes sense if video chat via cellular was MS only deficiency, but in this case it's pretty far down the list of what ails Redmond.

Get your head out of the negativity. This is the problem with people like yourself.... you don't look in the long run and see the possibilities. Put some possitivity into your posts. Look at the editor, he sees both sides of the story, you don't.

bob_c_b said,

Revenue != profit

Revenue: the entire amount of income before any deductions are made. There's no way skype was spending anywhere close to the amount of money they're making. A profit is still a profit.

Lachlan said,

so i guess you must think google was stupid for buying youtube because it has not been profitable yet in years even with all those adds plastered on videos.. Its not about making money from skype its about adding value to the things that they already have.. they could release windows 8 w/ skype cooked in, windows phone w/ it built in.. It would be the best move if you want to beat facetime.. Skype is the probably the most well known video service and is a way greater brand then facetime video service..

thats what i was trying to explain to him... but he still thinks if its not profitable it wont be useful... specially for that amount of money. i told him he should have some bussines vision and it doesn't build in a year sometimes it takes more years like xbox. which wasn't a win when it was released years ago. but with 360 they are a success.

Lachlan said,
so i guess you must think google was stupid for buying youtube because it has not been profitable yet in years even with all those adds plastered on videos.. Its not about making money from skype its about adding value to the things that they already have.. they could release windows 8 w/ skype cooked in, windows phone w/ it built in.. It would be the best move if you want to beat facetime.. Skype is the probably the most well known video service and is a way greater brand then facetime video service..
Right. Microsoft overpaid for Skype by probably $4-5billion which is why it is a bad business decision in short term. MS is paying $965 per existing paying Skype customer. That is almost 3x the price AT&T pays for each customer to Apple - highest in the cell phone business and AT&T recovers around $2k per customer over the course of the contract. Skype's past has been terrible with negative profits all throughout its lifetime, which indicates that Microsoft is also going to lose money from this Skype purchase for, at least, the next 2 years. This means it's not only $8.5bn; it's 8.5bn + the cost of supporting Skype until it becomes a profit making business. And we can only speculate what MS will do with it in the future and how long it will take to recover the ~$10bn. Telecom will soon (in 2-3 years) take a turn to becoming a full fledged commodity and that's when overpaying, for companies like Skype, starts to look like a bad decision.

Overall, it's a good purchase, if MS can make it a profit making business in the next 10 years, but MS paid way way way too much for it.

Speculating from the price, this is supposed to play a big part in Windows 8.

Edited by Jebadiah, May 11 2011, 4:45am :

bob_c_b said,

Umm, $1b to Nokia, $.5b to launch WP7 plus $8.5b for Skype, what does that equal???

Oh I didn't know you we're adding that to the WP7 expense. WP7 will benefit from this but a lot of Microsoft products and services will too so I don't think that whole figure should be going against WP7's expenses like the Nokia and marketing expenses.