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Microsoft to Buy Skype for $8.5 Billion

Costly acquisition of Skype by Microsoft has many wondering about the future of the popular service.

In the largest acquisition in its 36-year history, Microsoft announced Tuesday, May 10, it would purchase Skype for $8.5 billion.

Skype is a peer-to-peer VoIP system that allows users to place calls over the Internet to other Skype users for free. Calls to landline and cell phones can also be placed using Skype for a fee. Launched in 2003, Skype was purchased by eBay for $2.5 billion in 2005. The e-commerce company later sold off a majority of Skype in 2009 for a reported $2.75 billion. Following Tuesday’s announcement, many industry observers are left wondering what Microsoft plans to do with the service.

“The PC business has grown stagnant,” said NPR's Jacob Goldstein.  “The growth now is in smartphones and tablets — where Microsoft is getting clobbered by Apple and Google. This, as much as anything, explains why Microsoft is paying $8.5 billion for Skype, a company that lost money last year, and that most people use for free.”

Smartphones, in particular, is where Microsoft hopes to maximize its latest investment, said USA TODAY's  Tim Mullaney

“Microsoft hopes to use the Internet calling service to beef up its Windows 7 mobile-phone operating system and its enterprise software business by adding Skype’s voice capabilities.”

Daniel Indiviglio at The Atlantic, meanwhile, thinks Microsoft is angling for a stronger foothold in the video conferencing market.

“The biggest synergy for this deal could be through Microsoft’s Office suite. With a little additional development, Microsoft could now quickly and easily roll out a great video conferencing experience.”

Indiviglio also speculated that Skype might find its way into Microsoft’s online gaming service.

“Another use could be through Microsoft’s gaming system Xbox. The idea here would be something like face-to-face gaming,” he said, but wondered, “do gamers really care about seeing one another face-to-face?”

Writing for the Huffington Post, Steven Hoffer asked if Microsoft might have overpaid. It could be, he said, that the move was partially driven by Microsoft’s desire to keep Skype out of the hands of Google and Facebook, each of which had been rumored to be pursuing Skype as well.

The purchase may have seemed “irresistible just to keep Skype away from Google and Facebook,” Hoffer said.

Paying such a steep price for a service most use for free is a gamble. So will it pay off for Microsoft?

“The Skype deal won’t immediately vault Windows Phone 7 to the top of the heap, but it does have the potential to boost flagging sales once Skype is integrated into the platform,” wrote Kevin C. Tofel at GigaOm.

Wired’s Peter Bright , meanwhile, took a dimmer view. “Ultimately, it’s hard to see how the Skype purchase is worthwhile from a technology or user access perspective. The technology isn’t good enough and the users aren’t lucrative enough or plentiful enough to justify it.”

However the deal eventually shakes out, Lauren Indvik at Mashable believes that this deal, when viewed in light of Skype’s 2009 sale, means “There is one clear set of winners here: Skype’s investors.”

Lauren Katims previously served as a staff writer and contributing writer for Government Technology magazine.