Did Microsoft blow $8.5 billion on the wrong Skype?

“When a company is acquired, the price paid is usually higher than what the company is worth,” Horace Dediu writes for asymco.

“For example, when looking at Skype through Microsoft’s eyes, they could be valuing it for its resources (employees, management team, customers, or intellectual property),” Dediu writes. “Or they could be valuing its processes (how it makes software and how it recruits customers) or it could be its business model (viral distribution, very low prices with wide distribution, plan to disrupt telecommunications). Each of these is a separate, mutually exclusive deal with separate integration plan and separate strategic justification. Each is targeting a separate Skype.”

Dediu writes, “Chances are that Microsoft paid for Skype’s customers and engineers but will not apply the innovations of viral peer-to-peer distribution or disruptive voice pricing. If that happens then perhaps Microsoft will pay $8.5 billion for the wrong Skype and telecom disruption will find another home.”

Read more in the full article here.

MacDailyNews Take: We all know that Ballmer bought Skype in a vain attempt shift the attention of shareholders and the tech/business press onto anything other than the ass-kicking being administered to Microsoft by Apple and those who attempt to imitate Apple. Next, he’ll try to buy Nokia’s phone biz or RIM and he’ll Kin them, too.


  1. I still can’t understand why the hell did Microsoft buy Skype. Don’t they spend something like $4 billion a year on R&D? Couldn’t their research labs come up with something similar to Skype for a fraction of the price? What are the people employed in the Online Business Division doing? Couldn’t Skype’s functionality be developed by the eggheads running Windows Live Messenger? It’s a confusing time to be Ballmer for sure.

    1. I can understand why Microsoft bought Skype. What I can’t understand is why they put a 90% premium on the purchase. Given Skype’s revenues and cash flow $850 million would have been a perfectly logical price and one that would earn its purchase price back in a few years. At $8.5 billion the children of every single Microsoft employee will be dead by the time the Skype purchase pays off. Ballmer would have been better off putting the money in Apple stock or increasing dividends.

    2. They bought it so that they can kill it after they buy Nokia. It’s an insurance policy for that next acquisition. Now that they know they can kill Skype they are free to spend money on Nokia.

    3. “Don’t they spend something like $4 billion a year on R&D?”

      Microsoft historically have very POOR R&D. Considering the state of their fracked management, aka Marketing-As-Managment, you can bet that M$’ R&D has extremely bad morale and little incentive to bother creating anything a GED graduate TechTard marketing executive can’t comprehend.

      Throw money! Maybe it’ll stick somewhere.

  2. Everyone I know requiring paid VoIP services (international dialing to land lines or mobile phones, for example) has switched to services such as NimBuzz.

    Everyone I know wanting free VoIP (computer to computer) service has or is switching to Skype.

    Long live Ballmer!

  3. I have a feeling, come the holiday season, Microsoft shareholders will be singing the 12 days of Microsoft Christmas,

    On the first day of Christmas Steve Ballmer bought for me, a Yahoo search agreement.

    On the second day of Christmas Steve Ballmer bought for me, a Nokia windows phone deal,

    On the third day of Christmas …….

  4. Horace Dedu is one of the few original thinkers looking at the financial behavior of public companies. I thought his viewpoint was rather interesting. He’s always an illuminating read.

    For more interesting stuff, learn about the majestic honey badger in this touching YouTube video – you will be both enlightened and entertained:

  5. If MicroSoft had developed a Skype-like software and included it in Windows, they would be sued into oblivion by every telco under the assertion they are instantly killing thousands of American jobs. However, if they buy out an existing service, they can do almost whatever they like, including using it as a bargaining chip (shutting it down) in order to foment better deals with providers who would love to see it gone so they can go back to gouging for long distance calls.

    Sadly, I don’t think there’s hope for a positive outcome for Skype users.

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