The Microsoft Empire Strikes Back

By Don Reisinger  |  Posted 2011-05-10

Microsoft's Skype Buyout Makes Perfect Sense: 10 Reasons Why

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.

The Microsoft Empire Strikes Back


5. It should help Windows Phone 7

Windows Phone 7 has been having some difficulty getting off the ground. Google's Android platform and iOS are more appealing to users right now. But with Skype's help, Microsoft might be able to entice more customers to its side. After all, the platform would conceivably allow for video chatting or VOIP calling to any other mobile device, including Android handsets and iPhones, free of charge. Those kinds of options appeal to consumers.

6. Millions are using Skype around the world

There is constant speculation about Microsoft's future. For now, the company seems heavily insulated, thanks to Windows and that platform's popularity. But looking ahead, some wonder if Microsoft will lose its grip on consumers as Google and Apple continue to chip away at its defenses. With Skype's help, Microsoft might be able to limit the impact of this fierce competition. After all, with millions of folks around the globe using the VOIP service, Microsoft has the unique opportunity to once again capitalize on a highly popular software platform. It might not be Windows, but Skype's popularity could only further enhance Microsoft's importance to the average consumer.

7. Is it the Mac OS X Trojan horse?

Microsoft has been seeking ways to appeal to Mac OS X users for quite some time. The company tried Internet Explorer years ago, but that failed. Its Office for Mac platform is nice, but it could be better. With Skype's help, Microsoft might finally have the Trojan horse it needs to get Mac owners to think about Microsoft and Windows again. With the right strategy and the proper mix of improvements to the Windows application, Microsoft might just be able to at least get Mac users thinking about switching back to Windows and Microsoft applications.

8. It hurts Google

Prior to Microsoft's announcement of its Skype acquisition, reports were swirling saying that Google was also looking to buy Skype. By beating the search giant out, Microsoft has won a much-needed battle in its fight against Google. For years now, Google has been taking aim at Microsoft from all sides. All too often Google has made Microsoft look like a plodding, stodgy giant when it came to search, cloud applications and even industry acquisitions. This time around, Microsoft got the prize and Google is left wondering what it should do next.

9. The enterprise factor

Microsoft's Skype play doesn't only relate to Microsoft's intentions in the consumer market. The company is also keenly aware that an increasing number of companies are relying upon video conferencing. With Skype's help, Microsoft can appeal to those firms that want to be in constant contact with their employees. Video conferencing is very much the future in the enterprise. And it seems that Microsoft realizes that.

10. Microsoft's chance to own the living room

The living room is one of the more hotly contested markets in today's consumer industry. Nearly every major firm, including Apple, Microsoft and Sony, is trying to dominate that space. However, the company that does so will need to have a video-chatting function. In the living room, video chatting is becoming more popular. This year alone, according to research firm Synergy Research Group, video conferencing and telepresence could be a $2.5 billion business. A growing part of that is coming from the consumer at home. With Skype's help, Microsoft could carve out a significant portion of the living room video conferencing market not only through its own devices, but others, as well. Looking ahead, Skype might just be big business for the software giant.


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