Microsoft (NSDQ: MSFT) today finally got the keys to Skype, so to speak: the deal for Microsoft to buy the internet telephony giant for $8.5 billion formally closed. The deal was first announced in May but needed to pass successfully through regulatory approval in several major markets — most recently, Europe, just the other week — before Microsoft could call the deal complete.
However, Microsoft also noted that the deal has not been approved everywhere. “The acquisition remains under review in a few countries, and will be completed in those countries when such reviews are closed,” noted the release. The countries that have yet to approve the purchase are Russia, Ukraine, Serbia and Taiwan, a Skype spokesperson told paidContent. It’s not clear at this point whether the clearances in these markets are a formality or whether there is still a question of approval, and what that might mean for the bigger picture.
In any case, today Microsoft has taken a moment to proclaim that Skype will now officially become a division of Microsoft. It will be led by Tony Bates, who used to be the CEO of Skype and now becomes president of that division, according to the release.
Now comes the challenging part.
Chief among them will be whether Microsoft will be able to make money out of a company that has seen explosive growth but a challenge so far in converting that to profit.
Skype, founded in 2003, currently has some 30 million users online at any given time, and claims to have 145 million active monthly users, making it the biggest provider of internet-based telephony today, which it offers through its PC-based client and also an array of mobile apps. Although these services have options for revenue generation — among them, the ability to purchase credits to call numbers outside the Skype network, offering users extras like voice mail, and the option to have “real” telephone numbers — Skype’s main traffic comes from free services. In 2010 it reported an operating loss of $7 million.
It will be worth watching to see whether that basic business model changes drastically: for example, incorporating either more metered services, or further forays into advertising and freemium-style services, making the service, for example, a platform for advertising from Microsoft’s own ad network.
But that points to another challenge for Microsoft: integrating Skype into its existing structure. Microsoft says it largely plans to keep Skype’s current corporate structure intact, with offices to remain in countries like Estonia Estonia, the Czech Republic, Russia, Sweden, the United Kingdom, Luxembourg, Japan, Singapore, Hong Kong, and the United States. That speaks to a relatively de-centralized way of working, and one that specifically will not be centered around Redmond with the rest of Microsoft.
Will that lead to a culture clash? It was certainly the case that Skype’s previous owner, Ebay, was never able to figure out a way of working with Skype in a useful-enough way: the company eventually sold Skype to a group of investors in 2009, five years after buying the company.
The one goal that might prove to be the easiest of all to reach will be the company’s growth strategy, Microsoft writes in its announcement of the deal that the goal is to reach 1 billion Skype users daily. That’s a figure that might have been a challenge for Skype as a standalone product, even with its popular apps. But since Microsoft says that eventually Skype will also be integrated into many of its existing products, both for enterprises and consumers, Skype may well become as ubiquitous as Windows or Word in the longer run.