SAN FRANCISCO — Trust us. We’re not going to screw up Skype.
That was the message Microsoft delivered Tuesday, hours after formally announcing that it was buying the internet telephony pioneer for a staggering $8.5 billion — staggering because it’s more than the Redmond giant has ever paid for anything, and because Skype doesn’t exactly print money.
But in an early morning press conference, as Google strutted for its Android developers in another part of town, an increasingly mobile-minded Microsoft made the Skype acquisition seem like the most logical thing ever. And, it said, it has no intention of messing with the brand which has become a consumer favorite and synonymous with the disruption of the telephone business.
We know what we’re doing, Microsoft CEO Steve Ballmer said on a noticeably small stage he shared with Skype CEO Tony Bates to explain why the merger of their two companies makes sense.
“We’re irrepressible,” said Ballmer. “This Skype acquisition is completely consistent with our ambitious, forward-looking, irrepressible nature. Microsoft and Skype will bring together hundreds of millions — or as Tony said, billions! — of consumers and empower them to connect in new and interesting ways. It’s core to our mission, and it’s core to our technology direction.”
Microsoft’s acquisition of the Luxembourg-based Skype will close this year, assuming it passes regulatory muster, the executives said.
Skype is the poster child for voice-over-internet-protocol — or VOIP — services, which allow customers to place telephone calls using the internet’s infrastructure instead of the phone company’s. Most people use Skype to place free calls to other Skype users. After its founding in 2003, eBay paid $3.1 billion for Skype in 2005, then sold the majority of it to an investment group in 2009 for $1.9 billion.
Skype is popular, especially among people who use its services to place international calls cheaply or for free. But it hasn’t exactly captialized on the social networking revolution and has faced carrier resistance in its efforts to create fully featured mobile clients. Meanwhile, Google acquired a competing service, Grand Central, for a reported $50 million in 2007, eventually launching it as Google Voice in 2009. Google recently struck a deal with Sprint, enabling Sprint customers to integrate their phone numbers with Google Voice.
Microsoft’s purchase of Skype is arguably as much about defense as offense. It denies Skype to, say, Facebook and Google, both of which were reported just days ago to be interested in in partnering with, and possibly buying it. As carriers de-emphasize what are becoming commoditized calling minutes in favor of pricier data bytes, Microsoft’s strategic alliance with Nokia also gives it huge reach in the distribution of Skype-integrated handsets.
However, that seems like a rich price tag for a company that only generated $860 million in revenue in the most recent year and $264 million in operating profit — yet no net profit at all. Microsoft is paying about $50 for each of Skype’s 170 million users, or about $1,000 for each of its 8 million paying customers.
Ballmer seemed optimistic about Skype’s ability to integrate into Microsoft’s current businesses, such as Windows Live Messenger and the corporate-oriented Lync. He said he expected to apply “classic” business metrics to evaluate the success or failure of the new Skype division.
Charles Golvin, an analyst with Forrester Research, said that while Skype probably wouldn’t generate much revenue for Microsoft directly, it could be a valuable addition to other internet-based services, in which e-mail, voice and video are all becoming part of the same stream of data.
“Part of the bet that Microsoft is placing is that this technology helps them do a better job of delivering to that river of communications,” Golvin said.
For instance, Golvin suggested, the company could integrate Skype into Xbox and Xbox Live, which — with the addition of Kinect — have become more voice-centric products in the last year.
Both executives sought to reassure Skype customers who might be worried about Microsoft’s ability and willingness to support the multiplatform software, which is available for Windows, OS X and Linux PCs; Android, BlackBerry and iOS smartphones; and even televisions.
“We’re one of the few companies that has actually has a track record of doing this,” said Ballmer, pointing to the company’s Mac support over the years. “Fundamental to the value proposition of communications is being able to reach everybody, whether they happen to be on your devices or not.”
“The commitment from Microsoft to support multiplatform clients is absolutely critical,” Bates said, indicating that Skype got assurances from Microsoft that it would continue to support all of Skype’s platforms.
Finally, Ballmer indicated no intention to take on the carriers in an aggressive attempt to bring VOIP services into Windows Phone 7. Indeed, Ballmer said, “the partnership and collaboration that we have today [with carriers] is fundamental.”
Bates pointed to Skype’s track record of striking deals with carriers to offer Skype services as a differentiating feature.
In other words, expect Microsoft to try to sell Skype to carriers, not use it to bash them about the head with VOIP services that reduce their billable minutes.
Story originally published on Wired.com: Ballmer to Skype Fans: You Can Trust Us | Epicenter | Wired.com.
