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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.
I was only kidding a little bit last week when my reaction to Google’s declaration that they wouldn’t sell music was, “They seem to be the only ones.” Today, Nokia jumped in by buying Loudeye:
Nokia is to buy Loudeye, the US digital music company that owns On-Demand Distribution (OD2), the European music download supplier started by Peter Gabriel. The Finnish mobile phone giant is paying $60m in cash for the company.
Nokia described the deal as the foundation for its own music service with which it will target owners of its phones, in particular is N-series handsets. It said the service will go live next year and target Nokia handsets the way Apple’s iTunes Music Store targets iPods. You can tell that’s the model Nokia has in mind: it specifically described itself “the world’s largest manufacture of digital music players”.
More details here and here, but you have to admit that Nokia has a nice foot in the door.
Less robust are the chances for the Sony “mylo” which was announced yesterday. The mylo features Wi-Fi connectivity with three built in instant messaging services (Google, Skype, and Yahoo), Web browsing, and Skype VoIP service. Along the way:
While you chat or browse the Internet, the 1GB of the flash memory on the mylo personal communicator lets you enjoy your music too. It supports the playback of MP3, ATRAC® or WMA (secure and unsecure) files. The mylo communicator has a built-in speaker for listening to music so you can share your music with those around you. You can also view MPEG-4 personal videos by transferring files via USB cable or with Memory Stick Duo™ media. You can also store JPEG pictures from the Internet or your digital camera.
Providing networking possibilities without a wireless network, the mylo personal communicator detects when it comes into the presence of other mylo units. With the ad-hoc application, you can share play lists and stream music between mylo communicators one at a time.
Supposedly, you can add up to 4GB of Memory Stick storage, but it seems a little thin in that regard for a full fledged personal media player, although the networking feature seems to anticipate what Microsoft is planning for Zune. The mylo is USA only and the real target apparently is an instant messaging user in range of a Wi-Fi hotspot which would seem to be an odd demographic. Text messaging is much more popular overseas, but is cell phone based. There’s no word of a dedicated music download service, so I think we can chalk this up as another one of the odd generic players trying to get traction with novel features.
So what do these mean for Microsoft’s Zune? It means that Microsoft will have to work all that much harder to separate themselves from the crowded field of aspirants for the iPod’s throne.
Update 8/11: Concerning PlaysForSure licensee Nokia, Jupiter Research’s Michael Gartenberg asks “Is Plays for Sure Dead?“
My apologies to the Bard for the title, but that’s the question as Microsoft released the latest version of MSN Messenger under the Windows Live brand:
Windows Live Messenger, which had been available in test form, will officially launch Tuesday.The free program is an upgrade to MSN Messenger, the previous name for the software maker’s tool for quickly communicating online. Such products have become incredibly popular for a wide variety of audiences, from teens to business people.
The basic service gives people a way to quickly type messages back and forth. Windows Live Messenger also offers video calling and ways to easily share files, among other features.
Competitors, including market leader AOL, also are adding such functions.
Yahoo released the latest beta of their IM offering yesterday with similar features.
MSN Messenger was the second-most popular instant messaging service, after AOL, for U.S. home and worker users, according to May data from Nielsen/NetRatings.Globally, MSN Messenger is the most popular instant messaging client, with 204.6 million users in April, according to comScore Media Metrix. Yahoo is No. 2 with 76 million users, while Time Warner Inc.’s AIM and AOL messaging products together had about 51.3 million users, the research firm said.
That’s what we’re used to seeing, but there are various ways of counting for these market stats so you may see different rankings like eBay’s Skype as number 1 followed by AIM and then Yahoo.
The official press release has more on the new features in Windows Live Messenger and something else:
We can’t bring ourselves to let the company’s feeble attempt to link the launch to the new Pirates of the Caribbean film pass without comment. Actually we can. But have a look at the press release here, and share our pain.
Aside from the pain, it was rather odd since Windows Live Messenger has enhanced importance as the leadoff hitter in Microsoft’s lineup of the Windows Live online service offerings (discounting the misbranded Windows Live OneCare which launched last month). Microsoft underscored the importance in a press Q&A with Martin Taylor, Microsoft Corporate Vice President of Windows Live and MSN:
Windows Live Messenger is the first core, global service to launch of the more than 20 new services currently in testing for Windows Live, a set of personal Internet services and software designed to give users greater control over how they stay informed, connected and protected on the Web.
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PressPass: Why did Microsoft choose Windows Live Messenger as the first core Windows Live service to launch?Taylor: We regard Windows Live Messenger as one of the most pivotal services within Windows Live, because it’s built to help people connect and share in all kinds of rich, unique ways. Windows Live Messenger offers people the ability to see, talk and share with family and friends in such a seamless way that puts them in control. Windows Live Messenger is also integrated with many of the Windows Live services to serve as a convenient entry point into consumers’ online world so they can do even more than IM right from one place. From directly within Windows Live Messenger, users can launch a shared Windows Live Search query so they can pick out a restaurant with the person they’re talking with, or visit a blog on MSN Spaces to see what their friend has been up to, or browse to their favorite Web sites using Windows Live Favorites, or check their Windows Live Mail. So in many ways Windows Live Messenger is one of the main hubs of Windows Live. Windows Live Messenger also is the first core service that incorporates the sleek user interface and look-and-feel that will be used across all of the Windows Live services.
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PressPass: How big of a role will Windows Live Services play in the future of Microsoft’s business?Taylor: Windows Live is a huge growth opportunity for Microsoft. The online advertising opportunity will be a big growth driver for Microsoft in the coming years, as the market continues to expand. To ensure we are ready to take advantage of this opportunity, we plan to dedicate roughly US$1.1 billion of the company’s overall $6.2 billion research and development budget toward Windows Live and MSN in the 2007 fiscal year that starts next month.
As usual, Jupiter Research’s Joe Wilcox has an interesting take:
Granted, there are many new features in the updated Messenger client, but like many of its Windows Live counterparts, the software is rebranded MSN. As I said at the start of this “Live” drive, MSN rebranding would be the real new thing. Interesting, Microsoft is making more noise over Messenger than Windows Live OneCare, which is something new. That product launched about 20 days ago.About half the Windows Live products–nearly all betas–are MSN updates or rebrands, while some of the others moved from MSN to Windows Live testing. As of yet, there is little brand-spanking new, although Microsoft is improving products and cross-integrating loads of features among the “Live” stuff.
Wilcox also observes that if you had to pick a target for all this Microsoft effort, Yahoo might well be a better choice than Google.
It’s good news for Microsoft’s Windows cash cow when PC sales are good, and Amanda Cantrell at the AP reports that 1Q US PC retail sales were zooming based on data from market analysis firm, Current Analysis:
Computer makers enjoyed strong year-over-year growth during the first calendar quarter this year, according to new U.S. retail sales data.
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Of the companies and retail stores that Current Analysis tracks, first quarter laptop sales grew 43.6 percent over the previous year, while first quarter desktop sales grew 16.3.
The caveat is necessary because they don’t track direct sellers like the top vendor, Dell, and they don’t track all retail sales. Some company numbers: HP up 29%, HP Compaq up 69%, Gateway up 166% in laptops. The growth seems to be the result of falling prices across the board, with laptop prices in particular down 20% on average. One other factoid: “PCs running Microsoft’s Windows XP Media Center OS now dominate the market, accounting for 60 percent of desktops sold in U.S. retail.”
Meanwhile in instant messaging, comScore networks released a study claiming that Microsoft’s MSN Messenger is the number 1 client worldwide:
The MSN Messenger application has the strongest penetration worldwide, with 61 percent of worldwide IM users utilizing the application in February. MSN Messenger is also dominant in Latin America, reaching more than 90 percent of IM users, and in Europe and Asia Pacific, reaching more than 70 percent of IM users in each region. North America is the most competitive IM market, with MSN Messenger, AOL/Aim and Yahoo! Messenger each garnering between 27 percent and 37 percent of IM users in February.
Also interesting were the differences in IM use by geography with Latin America being the IM leader.
Finally, the bad news for Microsoft was Internet search. Mary Crane at Forbes:
According to the latest data released by comScore, a global market research provider, Google continues to dominate the online search market worldwide.
Google’s market share increased to 60.3% in February, from 60% the month before, and gained most of its market share from Yahoo! and Microsoft MSN, reports Bear Stearns analyst Robert S. Peck in a Monday research note.
Not a big change, but no one seems to be able to dent Google’s share so far.
