In case you hadn’t guessed by now, I’m actually talking about Skype, and its recent buyout from Microsoft. Purportedly having cost them $8.5bn., it was Microsoft’s biggest takeover yet—but I ask, why?
Skype has a long and colourful history. Starting out in 2003 and originally called Sky peer-to-peer, soon after it was abbreviated to Skyper and again soon after that the ‘r’ was dropped because ‘Skype’ domain names were easier to come by. In April 2003, the first Skype domain name was registered, and the software entered its initial beta phase. It wasn’t until October 2005 that anything else happened: the ground-breaking purchase of the Skype brand by eBay took place for $3.1bn. Skip forward a few years (and a few controversies) to 2010 and things hit a wall; eBay went public and sold 70% of Skype’s ownership for a value of $2.75bn.—less than they had paid for it.
Enter, stage right: Microsoft, paying “three times more than the company’s valuation in 2005″, (The Guardian reports the figure to be $8bn) and “more than thirty-two times the profit margin per annum” than the software was currently making. The Financial Times was worried it would create a new tech bubble and many other sources are questioning its purchase including The Economist.
Microsoft, however, knows exactly why.
Here are some facts and figures for you:
- In 2010, Skype had 13% of the international calls market.
- By January 2011, the platform had 27 million users, this rose to 29 million by the next month.
- It was in February 2011 that Skype made an announcement, it was dropping Skype for Windows Mobile and that it would not create the software for Windows Phone 7.
In less than 3 months, Microsoft went from having a partial market share to the position where it was about to lose a major player in its selling point. The Neowin blog says “Instead, they are going to be focusing their resources on devices running the iPhone OS, as well as Android.” and sales would drop if their phones didn’t have it. Microsoft was going to lose billions of dollars if they didn’t do something. So they did what they do best—bought it out.
The fact Microsoft still have their share of the Skype-compatible market means that such a powerful company can push it out. This includes on their Xbox consoles (another huge market which was missing out before) and anything else that will bear its logo in the future. Maybe they will go ‘Windows’ with it and issue licenses to manufacturers so they can use it with their devices; some televisions are currently shipping with the software!
All-in-all, it’s no wonder Bill Gates wanted the deal to take place as he said in an interview with the BBC. Without Skype, Microsoft, his beloved software child, was set to lose even more money in markets where it was already struggling. It can now take this software on to bigger and better things (hopefully) with its (evidently) big money backing.
What are your thoughts on the takeover?