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Microsoft Corp. (Nasdaq: “MSFT”) and Skype Global S.à r.l today announced that they have entered into a definitive agreement under which Microsoft will acquire Skype, the leading Internet communications company, for $8.5 billion in cash from the investor group led by Silver Lake. The agreement has been approved by the boards of directors of both Microsoft and Skype.
The acquisition will increase the accessibility of real-time video and voice communications, bringing benefits to both consumers and enterprise users and generating significant new business and revenue opportunities. The combination will extend Skype’s world-class brand and the reach of its networked platform, while enhancing Microsoft’s existing portfolio of real-time communications products and services.
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Skype will support Microsoft devices like Xbox and Kinect, Windows Phone and a wide array of Windows devices, and Microsoft will connect Skype users with Lync, Outlook, Xbox Live and other communities. Microsoft will continue to invest in and support Skype clients on non-Microsoft platforms.
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Skype will become a new business division within Microsoft, and Skype CEO Tony Bates will assume the title of president of the Microsoft Skype Division, reporting directly to Ballmer.
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The acquisition is subject to regulatory approvals and other customary closing conditions. The parties hope to obtain all required regulatory clearances during the course of this calendar year.
Om Malik has some perspective on why Skype’s owners were anxious for it to be sold and suggests that if Microsoft does not botch the acquisition, the big winner could be Facebook (who already has a relationship with Microsoft) and that a joint announcement could be expected shortly. Still, the big question is how the acquisition will work out, including how much of the Skype team will stay with Microsoft and the basic economics of the Skype service which has already suffered through a failed acquisition by eBay:
Despite its popularity, the service has struggled to maintain profitability. Since most of its services are free, Skype makes much of its income from a small group of users who pay for long distance calls to telephone numbers. In 2010, Skype recorded $859.8 million in revenue but reported a net loss of $7 million, according to a filing.
Microsoft’s deal-making history is mixed. The company has often been an smart acquirer of start-ups and smaller companies, analysts say, picking off technical teams that are then folded into products likes Windows, Office and Internet Explorer. But during Mr. Ballmer’s tenure as chief executive, beginning in 2000, the company has also made far larger, riskier bids, most of which have been viewed as unsuccessful.
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In 2005, eBay bought Skype for $2.6 billion with hopes of tightly integrating the service as a sales tool. But the deal never lived up to its promise and eBay took a $1.4 billion write-down on its investment.
I’m frankly a bit dubious about the success or at least profitability of this acquisition since Skype doesn’t even seem to be a side dish, but more of a garnish on Microsoft’s plate and a very expensive garnish at that.
Microsoft announced today that they are ditching Windows Live Spaces, their entry in the social blogging arena, and have arranged to migrate the current Live Spaces blogs to WordPress.com.
Upgrading a Windows Live Spaces blog to WordPress.com
There are 30 million people who are actively using Windows Live Spaces and have been eagerly awaiting the next set of new blogging features. For these customers, Windows Live and WordPress.com have worked together to build a simple way to move your blog posts, comments, and integrated photos right over to WordPress.com and start taking advantage of all their new features. And we’ll also redirect all your old Spaces URLs to your new blog, so you don’t lose any visitors along the way.
Windows Live Spaces users have 6 months to make the switch. Users of Microsoft’s very capable Windows Live Writer blogging client (which supports many blog types besides Live Spaces including WordPress) don’t have to worry (yet) because Microsoft says there is no plan to phase it out and it will remain part of the Windows Live family, but one can’t help but wonder which other of the multitudinous remaining family members will be shown the door.
NPD and Morgan Stanley Research are reporting that notebook PC sales growth (monthly year over year) has been in decline since Apple’s iPad was released and now has gone negative. There are undoubtedly a number of factors at work, but the iPad is surely a major one. Best Buy CEO Brian Dunn “said internal estimates showed that the iPad had cannibalized sales from laptop PCs by as much as 50 percent.”
While this is certainly hard cheese for the PC makers, there is someone else who is taking it on the chin: Microsoft. Almost all of those laptops PCs that didn’t move were running the Windows operating system and many would pick up some version of Microsoft Office as well. Those sales have now vanished and when the Microsoft Windows and Office cash cows stumble, so does Microsoft. Stand by for some interesting earnings reports from Redmond.
Update: There’s a lot of skepticism about Best Buy CEO Brian Dunn’s statement and he’s now backpedaling rapidly without denying he said it. I tend to think it was simply a misstatement since the implied hit on notebooks sales is so much larger than the Morgan Stanley report would require. Speaking of which, a comment from the author of the Morgan Stanley article says that the sales figures showing the decline include netbooks. That is better news for traditional PC makers, but since most netbooks these days run Windows, it is cold comfort for Microsoft.
Nokia today announced the appointment of Stephen Elop, currently the President of Microsoft’s Business Division (i.e. mostly Office), as their new president and CEO starting September 21. Nokia needed a change since they have been left as far behind in the smartphone race as Microsoft, but observers are skeptical if Elop is the right man for a tough job (similar thoughts here).
As for Microsoft, no replacement has been named and now Steve Ballmer has two major Microsoft businesses reporting directly to him, the Business Division and the Entertainment & Devices Division.
