Microsoft made one of the blockbuster IT industry acquisition deals of the year with the announcement of its intention to acquire Skype for $8.5 billion. All across the industry, opinions are flying over whether the software giant's decision to acquire a company outside of its core competencies is really a good idea. Some say it paid too much for a firm that will deliver too little for Microsoft's bottom line.
But such opinions are shortsighted. Microsoft's desire for Skype might seem rather odd at first glance for a company that is still mainly a producer of enterprise software. But when one considers all the many benefits that could go along with this move, it quickly becomes clear that Microsoft made the right choice. Even the $8.5 billion price tag isn't all that bad, considering the growth potential that Skype could bring to Microsoft's operation along with the strategic imperative pressing on the software giant to move deeper into the communications field.
So perhaps it's time to give Microsoft some credit. It was able to outbid two entrenched competitors and steal away what could be the most important VOIP (voice-over-IP) provider in the industry. Not bad.
Read on to find out why Microsoft's Skype acquisition makes perfect sense.
1. The price is right
There is much debate over whether or not Microsoft should have paid $8.5 billion for a company that was turning a profit in the low millions of dollars. Those folks say that Skype was worth no more than a few billion dollars. But what they don't realize is that the competitive landscape was such that Microsoft was forced to pay a premium. Both Facebook and Google were reportedly trying to acquire Skype. Moreover, if Microsoft can properly integrate Skype into its many services, the company will likely turn the VOIP provider's relatively small revenue figures into a major contributor to its earnings. In a few years, one might look back and realize Microsoft bought Skype at a bargain rate.
2. Microsoft can afford it
One must also consider the fact that Microsoft can more than afford to dole out $8.5 billion for a company that's worth the investment. The software giant generates billions of dollars in revenue and profits each quarter. In fact, during its last reported quarter ended March 31, it made $5.2 billion on more than $16.4 billion in revenue. In other words, it will be able to make up its Skype acquisition in just six months. Not bad.
3. Consider Kinect
Microsoft's Kinect platform, which allows gamers to play titles with only the movement of their bodies, is integral to the software giant's plans with Skype. With Kinect and Skype working together, users will be able to have video chats with others right from within an integrated platform. Separate accessories can bring the feature to the Xbox 360 when there isn't a Kinect present. Simply put, Skype could have a profound impact on Microsoft's increasingly important gaming operation.
4. It's now a FaceTime battle
When Apple first launched FaceTime, its video-chatting service, on the iPhone 4, some wondered if it would have any sustainability in an increasingly crowded marketplace. But now that FaceTime is available on the iPad, as well as Macs, it's clear that Apple is on to something with its multiplatform communication service. Moreover, it put Microsoft behind. With Skype's help, Microsoft can now allow for a FaceTime-like level of communication not only through its many operating systems, including Windows 7, but through other platforms as well. It might turn out to be better than FaceTime.