Was that $8.5 billion well spent? Skype, Post-Microsoft.

Posted on the 25th May 2011

So Microsoft has acquired Skype for $8.5 billion. That’s a lot of cash in anyone’s books. (Apparently the next highest bidder was only $4 billion). Skype has never made a profit: in 2010 it recorded a loss of $7m on revenues of $860m – $1.30 per registered user a year, or $5 per “connected” user a year. While revenues have been growing it has been able to negotiate better call termination rates around the world with telephone companies.

The acquisition is the second in Skype’s eight-year history. In October 2005 it was bought by eBay for $2.5bn, but was 70% sold in October 2009 to a consortium of private equity and venture capitalists.

And how does this change things? Well…for one – Microsoft has now become the worlds largest carrier of international long distance minutes.  What will this do to the occasionally fractious relationships that Microsoft has with incumbent telecom?  Will national carriers view the disintermediation of the long distance business at Microsoft’s hands positively or negatively?  Will the combined companies simply continue on Skype’s trajectory toward the eradication of that business, or will Microsoft try to finesse this for the sake of their carrier relationships?  My guess is they’ll continue on Skype’s trajectory.

For business users who rely on video conferencing for their companies, it’s also a plus if Skype can easily be integrated into the operating system and email client (Windows and Outlook) they already use. It also means Skype will be pushed heavily into the mobile market, now that front-facing cameras are becoming standard on newer  mobile phones. But it remains to be seen how the mobile phone companies such as Verizon and AT&T feel about free voice calls and low-cost international calls through a Skype application. Or worse, will Microsoft even allow free Skype calls on its mobile phones if it wants to maintain relations with mobile phone companies?

And, in time, if Microsoft doesn’t drop the ball, it could be beneficial for all Windows users who might one day see Skype integrated into their operating systems and can make a free video call across the country with a single click.

But I leave you with a thought – perhaps the next press release from Microsoft will be…”Skype – now only $14.99 per month.”